Economic Development - Poverty: Causes of Poverty - Unemployment

This section explores the causes of poverty, focusing specifically on unemployment. Unemployment is a significant contributor to poverty, leading to loss of income, reduced living standards, and social hardship. We will examine the different types of unemployment and the factors that lead to their occurrence.

What is Unemployment?

Unemployment occurs when people who are willing and able to work cannot find jobs. It is typically measured as the percentage of the labor force that is unemployed.

Types of Unemployment

There are several different types of unemployment:

• Frictional Unemployment: This occurs when people are temporarily between jobs. It is often a result of people voluntarily leaving one job to find a better one or entering the workforce for the first time.
• Structural Unemployment: This arises from a mismatch between the skills of the workforce and the requirements of available jobs. It can be caused by technological changes, shifts in consumer demand, or industry decline.
• Cyclical Unemployment: This type of unemployment is linked to the business cycle. It increases during economic downturns (recessions) when demand for goods and services falls, leading to reduced production and job losses.

Causes of Unemployment

Several factors can contribute to unemployment:

1. Economic Downturns: As mentioned above, recessions lead to reduced demand for labor. Businesses may cut costs by reducing staff.
2. Technological Advancements: Automation and technological progress can replace human workers in various industries, leading to job losses.
3. Globalization: Companies may relocate production to countries with lower labor costs, resulting in job losses in the home country.
4. Skills Mismatch: If the skills of the workforce do not match the skills demanded by employers, structural unemployment can occur.
5. Government Policies: High minimum wages or excessive regulations can sometimes discourage businesses from hiring.
6. Lack of Investment: Insufficient investment in new industries can limit job creation.

Consequences of Unemployment

Unemployment has far-reaching consequences:

• Loss of Income: The most direct consequence is the loss of income for individuals and families.
• Reduced Living Standards: Unemployment often leads to a decline in living standards, including reduced access to housing, healthcare, and education.
• Social Problems: Unemployment can contribute to social problems such as crime, poverty, and family breakdown.
• Economic Output Loss: Unemployment represents a loss of potential economic output, as unemployed individuals are not contributing to the production of goods and services.

Type of Unemployment	Cause	Example
Frictional	Temporary between jobs	Someone leaving one job to find a better one
Structural	Mismatch between skills and jobs	Coal miners losing jobs due to decline in coal industry
Cyclical	Linked to economic downturns	Factory workers laid off during a recession

Understanding the causes of unemployment is crucial for developing effective policies to reduce poverty and promote economic development. These policies may include measures to improve education and training, promote economic growth, and provide support for the unemployed.