HL Economics

13 Unemployment


1 a) Distinguish between structural unemployment, frictional unemployment and seasonal unemployment.

Unemployment, the situation in which someone of a working age is actively seeking for a job yet unable to be hired, is present in various countries but all weighting differently, depending on that countries economic status. The four main types of unemployment includes frictional, seasonal, structural, and cyclical unemployment. Frictional unemployment is usually a short term situation in which workers are in between jobs or just looking for their first job. People become frictionally unemployed mostly voluntarily as they chose to quiet their current job to seek for a better job opportunity, or they have just gotten out of high school/college and just entered the labor forces. An example can be seen through a gym instructor who decides he wants to become a physical education teacher at a school. The time span in which he has no job and is seeking for a place as a teacher is considered for him to be frictionally unemployed. Possible solutions to reduce frictional unemployment include improving the communication between employers and people seeking for jobs as well as decreasing benefits formed from unemployment. Seasonal unemployment is also voluntarily as these seasonal workers chose to work at a job in which they will have to find other jobs between seasons. Ski-lift operators, summer-camp instructors, or life guards at beaches are examples of seasonal workers. These people do not have a job during certain seasons, thus are considered ‘seasonally unemployed’ and are seeking for jobs during this time span. Possible ways in which seasonal unemployment could be improved is similar to frictional unemployment of improving communication between employers and job seekers and reducing benefits gained from unemployment. For both frictional and seasonal unemployment the government policies that affect the incentives for jobs can influence the duration of job seekers to stay unemployed. If governments place a 3 month policy of support to unemployed workers, these people will more likely be motivated to find a job sooner than if unemployed workers were given a longer span to find a job. Also, technologies and job centers could help speed up the process of job seekers finding their match with the employers.

Screen shot 2013-03-19 at 2.21.17 AM

Lastly, structural unemployment is when “a worker loses his job due to the change in structure of the nation’s economy”. This form of unemployment is known to be the most natural way of people losing jobs because the workers usually do not have all the skills that firms demand, due to globalization or development in technology. For example, if a developing country shifts from a agricultural to a industrial base, increasing the demand of a more industrial skill than that of an farming skill. This would result farmers to lose jobs as firms are looking for people who have different skills than that of the unemployed worker. Although the country itself is economically growing and improvements in productivity is apparent, there will be many workers jobless due to their lack of skills to satisfy certain firms. In order to decrease structural unemployment, the solutions require a longer time than frictional/seasonal unemployment such as improving education, training, mobility of labor forces as requirements of skills change in the nation. Looking at the diagram below, there is a shift in LRAS to the left as the supply of jobs have decreased causing workers to loose jobs even if their demand for jobs stays the same.

Screen shot 2013-03-19 at 2.17.50 AM

b) To what extent is the existence of structural unemployment in a nation a sign of economic weakness? 

Structural unemployment is when “a worker loses his job due to the change in structure of the nation’s economy”. This form of unemployment is known to be the most natural way of people losing jobs because the workers usually lack the skills that firms demand, due to globalization or development in technology. As structural unemployment cannot be fixed through short term but rather by long term solutions, it will be hard for a nation to continue growing economically if there is a lack of sufficient workers. As the country develops technologically as well as changes are made in its economic structure, the unemployment rate may increase causing a shortage of workers that meet the necessary skills at firms. If nations are unable to insert long term solutions such as improving education or training, it will be hard for the nation to strive further growth in it’s economy. As structural unemployment is a form of natural unemployment, it is natural that as a nation grows and becomes more incorporated into the global economy, the make up of its GDP will be altered to face a more globalized state. Although many workers, especially farmers in nations changing from agricultural to manufactural base, will lose jobs due to the lack of skills firms are demanding, the GDP show the nations growth and strive towards a stronger economy.

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