Causes of Unemployment in UK
1. Frictional Unemployment:
· This is unemployment caused by people moving in between jobs, e.g. graduates or people changing jobs. There will always be some frictional unemployment.
· Also high benefits may encourage people to stay on benefits rather than get work this is sometimes known as “voluntary unemployment”
2. Structural Unemployment
This occurs due to a mismatch of skills in the labour market it can be caused by:
a) Occupational immobility’s. This refers to the difficulties in learning new skills applicable to a new industry, and technological change.
b) geographical Immobility’s. This refers to the difficulty in moving regions to get a job.
c) Technological Change. If there is the developments of labour saving technology in some industries there will be a fall in demand for labour.
d) Structural change in the economy. The decline of the coal mines due to a lack of competitiveness meant that many coal miners were unemployed and they may find it more difficult to get jobs in new industries such as computers
3. Classical or Real Wage Unemployment:
This occurs when wages in a competitive labour market are pushed above the equilibrium. This is sometimes known as “disequilibrium” unemployment. Wages will also be sticky downwards. This could be caused by minimum wages, or trades unions
4. Demand Deficient or “Cyclical Unemployment”
This occurs when the economy is below full capacity.
E.g. in a recession when AD falls there will be a fall in output, therefore firms will employ less workers because they are producing less goods.
· Classical economists reject this view because they argue that in the long term wages should fall to encourage increased Demand for Labour and equilibrium would return
· However other Keynesian economists reject this. They argue
1. Wages are stick downwards, this means workers are not willing to accept a wage cut
2. If wages are cut then there is a fall in consumer spending this causes a fall in AD, therefore this makes the unemployment situation worse.
3. Efficiency Wages Theory. This states that if wages are cut workers become dispirited and work less hard leading to lower output.
4. During recession confidence is low and firms are reluctant to spend money on employing more workers even at lower wage.
5. Keynes said in the long run wages may adjust, but in the long run we are all dead!.
· In the 1930s mass Unemployment continued until WW2 suggesting Keynes was right and Classical economists wrong
Revision Notes on Unemployment
Which is Correct? - Monetarist or Keynesian View
Unemployment Essays
- Explain what is meant by Natural Rate of Unemployment?
- What Can Cause Natural Rate of Unemployment to Change over time?
- Should the Main Macro Economic Aim of the Government be Full Employment?
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