Causes and Effects of Unemployment

Topics: Unemployment, Inflation, Keynesian economics Pages: 8 (2302 words) Published: November 3, 2012
Causes and Effects of Unemployment
Unemployment defined by the Encyclopedia Britannica is the condition of one who is capable of working, actively seeking work, but is unable to find any work. In addition, to define a person as unemployed, the person must be an active member of the labor force in search of work. (Encyclopedia Britannica, 2012) There are three different types of unemployment: frictional, structural, and cyclical. Due to various causes in the economy, there will always be a certain number of people that are frictionally or structurally unemployed. However, cyclical unemployment only happens when an economy is in a downturn. Cyclical unemployment signifies a decrease in the GDP. Unemployment produces many unpleasant effects. Unemployment affects not only the unemployed but also society as a whole. These effects can be monetary and social. Overcoming certain barriers to job creation can help reduce frictional and structural unemployment. However, cyclical unemployment requires government intervention. Most economists believe that aggregate demand must increase to get back to full employment. Using Keynesian economics, government spending must increase to shift the demand curve to the right, which causes employment to rise. Overall, any type of unemployment is an issue but there are ways to reduce the unemployment rates and keep our economy at least close to full employment thus reducing the unpleasant effects of unemployment. Labor Force

First, to understand unemployment, we must understand the three different categories in the labor force: employed, unemployed, and not in the labor force. Employed is a person whom has held a job within the last week or held a job but out due to a strike or illness. Unemployed is a person who has not worked in the previous week but has attempted to find work in the last month. Not in the labor force is a person whom does not fall in the categories above. This category includes non-working spouses, students, and people who have quit looking for work. (Tim, 2011) Types and Causes of Unemployment

Now that we know what the labor force consist of, we will analyze the three different types of unemployment. The three types of unemployment are frictional, structural, and cyclical. Frictional Unemployment

Frictional unemployment is the type of unemployment that happens in normal economic conditions. Frictional unemployment is the normal search time when people are changing jobs, when students graduate from college and begin their job search, or time between jobs for seasonal employees. For example, a new graduate entering the workforce or a person changing jobs may have difficulty getting information for jobs openings. On the other hand, the person may be receiving unemployment benefits from the government and they may hold out on taking a job where the pay from the job is less than their benefits. Seasonal unemployment happens when work is available only during a certain time in the year. For example, a tobacco worker would be frictionally unemployed after the tobacco season is over. Frictional unemployment generally happens within a shorter time period than structural unemployment. (Tucker, 2008) Structural Unemployment

Structural unemployment is caused by structural changes in industries. Structural unemployment happens when an employee does not have the skills that match the existing job openings. Three causes of structural unemployment are occupational immobility, geographical immobility, and technological changes. Occupational immobility is the difficulty for a person to learn a new skill to enter a new industry. For example, a teacher may lose their job due to cuts in education spending. If the nursing field were the only jobs available, they would have to retrain to become a nurse. Geographical immobility is the difficulty for a person to relocate to new location to get a job. Due to economic factors, such as taxes and regulations on a business...
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