Cause or types of unemployment

Created by: bethanyfrancis
Created on: 26-02-16 17:14

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Frictional un-employment
- This is un-employment that occurs as people are between jobs.
- Types of unemployment
  - Structural un-employment
    - Results from the structural decline of industries, unable to compete of adopt in the face of changing demand, new products or emergence of more efficient competitors.
      - Structural unemployment has occurred within the service sector, due to the increasing use of information and communication technology and automated services.
        Globalisation leads to changes in the patterns of trade between countries. Britain has probably now lost forever a cost advantage in manufacturing goods such as motor cars, household goods and audio-visual goods,
    - Technological un-employment is a special case of structural un-employment resulting from the successful growth of new industries using labour-saving technology.
      - In contrast to mechanisat-ion , which has usually increased demand for labour, automation reduces the demand for labour.
  - Casual and seasonal un-employment
    - This is a special case of frictional unemployment, occurring when workers are laid off on a short term basis.
      - For example: tourism, agriculture, catering and building.
  - Seasonal unemployment is casual un-employment from seasonal fluctuations in demand.
    - For example: building workers laid off during cold winter months.
- Among the causes of frictional un-employment are geo-graphical and occupational immobility of labour.
  - These prevent laid-off workers from filling job vacancies immediately.
  - Family ties, ignorance about vacancies in other parts of the country and, above all, the cost of moving and obtaining housing are responsible for the geographical immobility of labour.
  - The need for training and the effects of restrictive practices and discrimination in labour markers are among the causes of occupational immobility.
    - 'Occupational Labor Mobility' Refers to the ease with which workers can switch career fields to find gainful employment or meet labour needs.
- 'The search theory of un-employment' provides an explanation of frictional un-employment
  - A professional worker earning £1000 weekly loses his job.
    - Only vacancies in low skilled work, earning £300.
      - The newly unemployed worker sets his aspiration wage at £1000.
        Meaning that they will choose to remain unemployed, rather than fill a low paid vacancy.
        The lower weekly wage, and perhaps poorer conditions of work and status associated with lower-paid work, render the vacancy unattractive.
        He lacks accurate information about the state of the job market.
        
        There are a number of ways in which this voluntary search period can end...
        He lacks accurate information about the state of the job market.
        
        1: The job seeker learns of a vacancy that meets his aspirations and qualifications.
        
        2: The vacancy may have arisen during his search period from an improvement in the labour market.
        
        3: They may have ended their voluntary un-employment as soon as they realise that their initial aspirations were unrealistically high. Settling for a lower-paid less accurate job.
        Disequilibrium un-employment
        Occurs when: Aggregate Supply of labour exceeds the Aggregate Demand for labour.
        And when labour market imperfections prevent the real wage rate falling, to restore labour market equilibrium.
        
        There are two types of disequilibrium un-employment.
        Cyclical or demand-deficient un-employment
        Occurs when there is a deficient aggregate demand resulting in cyclical un-employment.
        Thus, as Aggregate Demand falls, the Aggregate Demand for Labour falls. Resulting in un-employment
        
        Real wage un-employment
        As there is excess supply in the labour market. Competitive forces in the labour market could cure the problem.
        Biding the real wage down, eliminating the excess supply.
        But, suppose market rigidity, caused by trade unions, prevents the real wage rate falling back to equlibirum.
        The market mechanism fails to work, the excess supply of labour persists.
        
        By the trade unions refusing to accept lower wages,it prevents the unemployed from gaining jobs.
Long search periods, which increase frictional un-employment in the economy, can be caused by the welfare benefit system.
- The availability of a 'state safety net' of unemployed and other income-related welfare benefits, with redundancy payments, permits the unemployed to finance longer voluntary search periods.
- The replacement ratio is the relationship between the benefits from un-employment and the income received whilst in work.
  - If the replacement ratio is below 1 it tells us that the income from benefits whilst unemployed is lower than the income from employment. The opposite is true for a replacement ratio above 1
  - High replacement ratios destroy incentives to work! Leading to the un-employment trap.

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Cause or types of unemployment

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