Unit 6.2: Causes/types of unemployment
There are a wide variety of causes of unemployment that vary in their degree of
severity and in the appropriate government policies to tackle each cause. The main
ones are detailed below:
Frictional unemployment: this occurs when workers leave one job and spend time
looking for another- workers are essentially between jobs and are not likely to be
unemployed for a long period of time.
Seasonal unemployment: as its name suggests, workers are unemployed for
specific periods of the year when the demand falls in the industry that they usually
work in- for example; ski instructors, outward-bound activity instructors, hotels and
holiday resort employees and, in some countries, construction workers.
Cyclical unemployment: this, as its name suggests, is connected to the cyclical
fluctuations of economic activity. During periods of falling economic growth and
specifically a recession, the demand for goods and services falls and as a result
businesses reduce costs of production by cutting back on inputs- specifically labour.
This type of unemployment can be severe and long lasting. The fall in Aggregate
Demand can have multiplied effects throughout the economy as unemployed
workers cut back on their consumption due to lower _____________________, causing
output of goods/services to fall further and further job cuts made. Businesses will
also reduce investment as their confidence in the future falls, further reducing
aggregate demand.
Structural unemployment: this type of unemployment occurs when the structure
of an economy changes. Entire industries may close down because of a lack of
demand for their products (think- video tape industry) or production may be moved
to lower costs countries elsewhere (for example, there are now no more car
manufacturing plants in Australia as they have all moved to S.E. Asia). If the
industry is concentrated in one particular area of a country it can lead to regional
unemployment.
Technological unemployment: this is a type of structural unemployment as it
occurs when jobs are lost when production becomes more capital intensive (i.e.
more machines) in an industry.
Issues in the labour market: the labour market itself (supply & demand of labour)
does not often function as efficiently as it could due to:
 Powerful trade unions forcing wages up leading to fewer workers being
demanded
 Minimum wage legislation may cause some industries to reduce their
demand for labour



Generous unemployment benefits may reduce the incentives for people to
get a job
Information problems- it is often the case that those unemployed may be
unaware of the vacancies in the labour market that exist.
Labour immobility- a key factor in unemployment is that workers are either
unable or unwilling to take up a position because they may lack the skills or
education requirements for specific vacancies and/or they may be unwilling
to take up a job in another part of the country.
TASK 1- Match the diagram to the cause/type of unemployment
1.
2.
4.
5.
7.
8.
3.
6.
9.
TASK 2- Rank the following causes/types of unemployment according to how
severe you think they are (how damaging to the economy)
1. = Most severe 9 = least severe. Place in the appropriate row in table below
TASK 3- describe one measure that the government could take to tackle the
specific cause of unemployment (fill in column 2)
Structural Unemployment
Unemployment caused by generous unemployment benefits
Frictional Unemployment
Unemployment caused by Trade Unions
Cyclical Unemployment
Unemployment caused by minimum wage
Seasonal Unemployment
Technological unemployment
Unemployment caused by information problems
Type
of
unemployment Measures that the government should take.
(ranked by degree of severity)
1.
2.
3.
4.
5.
6.
7.
8.
9.