Two Causes of Structural Unemployment

Structural unemployment is neither voluntary nor short-term. These next two causes usually lead to long-term unemployment.

The fifth cause is advances in technology. That's when computers or robots replace workers. Most of these workers need more training before they can get a new job in their field.

The sixth cause is job outsourcing. That's when a company moves its manufacturing or call centers to another country. Labor costs are cheaper in countries with a lower cost of living. That occurred in many states after NAFTA was signed in 1994. Many manufacturing jobs moved to Mexico. It also occurred once workers in China and India gained the skills needed by American companies.

What Causes Cyclical Unemployment?

The seventh reason for unemployment is when are fewer jobs than applicants. The technical term is demand-deficient unemployment. When it happens during the recession phase of the business cycle, it's called cyclical unemployment.

Low consumer demand creates cyclical unemployment. Companies lose too much profit when demand fall. If they don't expect sales to pick up anytime soon, they must lay off workers.

The higher unemployment causes consumer demand to drop even more, which is why it’s cyclical. It results in large-scale unemployment. Examples include the financial crisis of 2008 and the Great Depression of 1929.

Social and economic concequences of the unemployment

– Negative consequences • Fall in demand for goods and services • Fall in demand for businesses further down the supply chain • Consider the negative multiplier effects from the closure of a major employer in a town or city – Some positive consequences • Bigger pool of surplus labour is available – but still a problem if there is plenty of structural unemployment • Less pressure to pay higher wages • Less risk of industrial / strike action – fear of job losses – leading to reduced trade union power

Consequences for the Government (Fiscal Policy)

– Increased spending on unemployment benefits and other income –related state welfare payments

– Fall in revenue from income tax and taxes on consumer spending

– Fall in profits – reduction in revenue from corporation tax

– May lead to rise in government borrowing (i.e. a budget deficit)

Unemployment: essence and unemployment rate

Unemployment is surplus of labour supply on demand for labour.Interactions between supply of and demand for labour identify employment level.

Unemployment rate. Unemployment rate(U.r.)=number unemployment people/general population x100%

Types of unemployment: Frictional, Structural, Cyclical.

• Frictional unemployment means voluntary giving up the job

• Structural unemployment is staying without job because of a new technology

• Cyclical unemployment is staying without job because of changes in economic cycle (low demand)

Classical, or real-wage unemployment, occurs when real wages for a job are set above the market-clearing level causing the number of job-seekers to exceed the number of vacancies. On the other hand, some economists argue that as wages fall below a livable wage many choose to drop out of the labor market and no longer seek employment. This is especially true in countries where low-income families are supported through public welfare systems. In such cases, wages would have to be high enough to motivate people to choose employment over what they receive through public welfare.

The unemployment rate is a measure of the prevalence of unemployment and it is calculated as a percentage by dividing the number of unemployed individuals by all individuals currently in the labor force. During periods of recession, an economy usually experiences a relatively high unemployment rate.

The "natural" rate of unemployment is defined as the rate of unemployment that exists when the labour market is in equilibrium and there is pressure for neither rising inflation rates nor falling inflation rates.

Hidden, or covered, unemployment is the unemployment of potential workers that is not reflected in official unemployment statistics, due to the way the statistics are collected. In many countries only those who have no work but are actively looking for work (and/or qualifying for social security benefits) are counted as unemployed.