Causes of Unemployment

Published: 08th June 2011
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Unemployment occurs when a worker wishes to be employed and is actively seeking employment, yet does not have a job. Most often, unemployment is a result of losing a job, or being laid off. However, it can also affect people that did not have a job, but are attempting to enter the job market. In economics, there are several different theories and explanations for why unemployment occurs. Structural unemployment is unemployment that occurs as a result of a worker entering a field that he is not well suited for.


Economists consider people unemployed if they do not have a job but are looking for a job. There are three main types of unemployment: frictional, cyclical and structural. Frictional unemployment is unemployment that occurs as a result of imperfect information about jobs and changes in preferences--essentially people voluntarily becoming unemployed to seek new lines of work. Finding a job takes time, and sometimes the reason a person is unemployed is because they are waiting to find a job that works for them or taking time to decide between multiple job offers. Seasonal unemployment is when a person is unemployed because certain types of jobs are only available at certain times of the year. For example, an individual who plows driveways might only have work in the winter, and a lifeguard might only have work in the summer when it's warm outside. Cyclical unemployment is job loss that occurs when there is not enough demand for work in the economy, such as what is experienced during a recession. Cyclical unemployment is caused by negative economic growth. In other words, cyclical unemployment is when there is not enough demand to supply jobs for people within a country. This type of unemployment can result in widespread unemployment within a country.

Read About jobs in Australia and employment in Australia .
Technological development contributes to unemployment because it causes changes in demand. Increased automation is a major historical cause of unemployment and still a cause of job loss in some industries. Automation refers to new technological processes displacing workers. As new industries develop, old ones suffer. Retraining programs can help people who are unemployed due to technological development and other changes in demand.


Many economists debate the extent to which a minimum wage causes increased unemployment. Workers who enter into the labor market during good economic times are undoubtedly able to ask for higher wages than those working during times of high unemployment. Unemployment is an economic reality, and a frequent source of good or bad financial news as unemployment rates change over time. Increased competition between businesses can cause unemployment as businesses search for ways to cut back on their costs in order to invest in expansion or attract investors.




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