Government and the Macroeconomy - Unemployment

Objective: Causes/types of unemployment: Frictional Unemployment

What is Unemployment?

Unemployment occurs when people who are willing and able to work cannot find jobs.

Types of Unemployment

• Frictional Unemployment: This type of unemployment occurs when people are temporarily between jobs. It can happen for various reasons, such as:
• Leaving one job and searching for a new one.
• New entrants to the labor market (e.g., school leavers).
• People who have voluntarily left a job to find a better one.
• People who have been made redundant.
• Structural Unemployment: This occurs when there is a mismatch between the skills of the workforce and the requirements of available jobs.
• Cyclical Unemployment: This type of unemployment is caused by fluctuations in the business cycle (recessions).

Frictional Unemployment in Detail

Frictional unemployment is generally considered a natural part of a healthy economy. It indicates that people are actively seeking better employment opportunities and the labor market is functioning.

The duration of frictional unemployment can vary depending on factors such as the availability of job information, the efficiency of job search techniques, and the skills of the unemployed individuals.

Factors Influencing Frictional Unemployment

• Labor Market Information: The availability and quality of information about job vacancies are crucial.
• Job Search Costs: The time and effort involved in searching for a new job (e.g., updating CVs, attending interviews).
• Geographical Mobility: The willingness and ability of people to move to areas where jobs are available.
• Skills and Qualifications: The relevance of an individual's skills to the available job market.

Government Policies to Address Frictional Unemployment

Governments generally do not aim to eliminate frictional unemployment entirely, as it is a natural phenomenon. However, they can implement policies to reduce its duration and impact:

Policy	Description
Job Services and Placement Agencies	Government-funded agencies that help job seekers find suitable employment. They provide job information, training, and placement services.
Improving Labor Market Information	Providing better access to information about job vacancies through online platforms, job fairs, and career counseling.
Skills Development and Training Programs	Offering training programs to help people acquire new skills or update existing ones, making them more employable.

Figure: Suggested diagram illustrating the flow of people between jobs and the concept of frictional unemployment.