Unemployment refers to the numbers of people not working and can be measured by the claimant count and labour force survey. There are different types of unemployment and each of them requires different policies to overcome them.
Firstly Cyclical unemployment or demand deficient unemployment is caused by a lack of spending throughout the economy and generally affects all sectors of the economy because spending is falling. To overcome this, the government needs to introduce policies which seek to boost spending throughout the economy. An example would be a loosening of monetary policy and cutting interest rates which make borrowing for individuals and businesses cheaper. They borrow money which is then spent in the economy which generates positive multiplier effects and rising demand leading to falling unemployment.
However, these policies assume that spending will automatically increase. If factors such as consumer confidence is low and the general state of the economy is weak, then consumers and businesses will not increase spending. Lower income tax rates might mean that consumers save rather than spend, so there is no fall in unemployment.
Another form of unemployment is structural unemployment, which is occurs when individual industries go into decline, such as mining or steel ad workers in these industries lose their jobs and unemployment in these regions rise. This type of unemployment can be overcome by improving the skills of the unemployed workers by having retraining schemes to make them employable in the growing sectors of the economy and also give them more information about where the jobs exist.
However, one of the problems with these policies is the cost of retraining. A lack of sufficient training could be an example of market failure and if firms are left to cover the cost they might be able to afford to do so. Similarly, if individuals are forced to cover the costs, they might not have enough funding available to cover the cost of...
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