Government and the Macroeconomy - Employment and Unemployment

Objective: Causes/types of unemployment: Structural Unemployment

What is Unemployment?

Unemployment occurs when people of working age are actively seeking employment but are unable to find jobs.

Types of Unemployment

• Frictional Unemployment: This is a short-term type of unemployment that occurs when people are in between jobs. It can happen because they have recently left a job, are new to the labour market, or are looking for a better job.
• Cyclical Unemployment: This type of unemployment is caused by fluctuations in the business cycle. During a recession, demand for goods and services falls, leading to reduced production and job losses.
• Structural Unemployment: This type of unemployment arises from a mismatch between the skills of the workforce and the requirements of available jobs. It often occurs due to technological changes, shifts in consumer demand, or changes in government regulations.

Structural Unemployment - A Closer Look

Structural unemployment is a persistent type of unemployment that is not easily resolved. It's often linked to changes in the economy and requires workers to acquire new skills or relocate to areas with more job opportunities.

Causes of Structural Unemployment

1. Technological Advancements: New technologies can automate tasks previously performed by human workers, leading to job losses in certain industries.
2. Changes in Consumer Demand: Shifts in what consumers want to buy can lead to the decline of some industries and the growth of others, creating a mismatch in skills.
3. Changes in Government Regulations: New regulations can make certain industries less competitive or even lead to their decline, resulting in job losses.
4. Globalisation: The movement of production to countries with lower labour costs can lead to job losses in developed countries.

Characteristics of Structural Unemployment

• It is usually long-lasting.
• It often affects workers in specific industries or regions.
• It requires retraining and skill development for affected workers.

Addressing Structural Unemployment

Governments can take several measures to address structural unemployment:

• Retraining and Education Programs: Providing workers with the skills needed for jobs in growing industries.
• Job Creation Initiatives: Government investment in infrastructure or other projects to create new jobs.
• Incentives for Businesses: Offering tax breaks or subsidies to encourage businesses to invest and create jobs in areas with high structural unemployment.
• Regional Development Policies: Supporting economic diversification in regions that have been heavily affected by structural unemployment.

Type of Unemployment	Cause	Duration	Example
Frictional	Short-term job search	Short	Someone between jobs after leaving a previous role.
Cyclical	Recessions and economic downturns	Variable	Job losses during a recession.
Structural	Mismatch between skills and jobs	Long	Coal miners losing jobs due to the decline of the coal industry.