Summary
Summary - Unit 2 ECON2 - Economics: Unemployment
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Detailed notes on the different types of unemployment.
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The different types and causes of unemploymentStructural unemployment
One type of unemployment which significantly effects economies across the globe is structural
unemployment. Structural unemployment is caused by fundamental shifts in an economy and often
occurs because workers lack the job skills which are required for a certain job or live too far from
regions where jobs are available but are unable to move closer. With structural unemployment,
there are plenty of jobs available however the problem comes due to a mismatch between what
companies require and what workers can offer. In previous years, structural unemployment has
been seen to last for decades with it being a long term form of unemployment and therefore usually
requires radical changes to reverse it and solve the number of jobs that need to be filled in the
economy. When exploring structural unemployment, it is important to consider the several different
causes and triggers which have already been partly mentioned: regional unemployment,
technological unemployment and sectoral unemployment.
As suggested by the name, regional unemployment is associated with the decline of certain
industrial activities such as shipbuilding and steel production that are heavily concentrated in
particular regions of a country. Regional or geographical unemployment is often caused by a lack of
both skills and flexibility amongst the unemployed. Many unemployed people are reluctant to move
to a different region due to uncertainty about whether suitable jobs will be available. A very
prominent example of regional unemployment inside of the UK is the famous north-south divide
which has impacted UK unemployment for many years with lower rates of unemployment and most
of the country’s better paid jobs being situated in the southern region splitting the less prosperous
north of the country and the more prosperous south. Although the northern regions of the UK have
had significantly more people claiming for unemployment benefits throughout time, the COVID-19
pandemic in recent years has significantly worsened and complicated this divide. Analysis shows that
whilst unemployment initially surged in northern cities at the start of the pandemic, as lockdowns
continued, unemployment responded by climbing faster in the south which can be shown on the
graph below which displays unemployment trends in 2020. Regional unemployment has worsened
throughout the pandemic due to many jobs in vulnerable industries have ben affected with many of
these jobs linking to cities’ regional, national and international exporting base. However, pre existing
geographical vulnerabilities inevitably have affected how UK cities recover from the increased
regional unemployment with cities in the north east being more likely to face a long term fallout
from increased job losses and cities in the south being more able to bounce back from a sudden
surge in unemployment.. In summary, the pandemic exacerbated existing geographical
vulnerabilities and created new ones as some previously strong cities have been hit by the highest
rises in joblessness ultimately complicating regional inequalities and making ‘levelling up’ more
important than ever.
, One of the primary causes of structural unemployment is technological unemployment brought
about by industries which move from one process to another and harness technological capabilities
making many jobs and roles become obsolete. Companies workforces are often put at risk due to
businesses seeking more efficient ways to operate and ways to leverage technology as cost cutting
measures. This leads to workers having to adapt by learning new business practices after being
replaced by more efficient processes and if they fail to do so, they may perpetuate structural
unemployment by lacking an appropriate skill set for certain job roles. In 2023, more than ever
before, technological unemployment is becoming a grave concern which has arguably been
accelerated due to the COVID-19 pandemic. In recent years, automation and the greater use of
digital technologies have been seen as key factors that will influence the way we work in the future.
Advances in robotics, digital technologies and AI are continuing to enable the automation of a
greater range of tasks for example the use of robotics in factories to operate production lines and
knowledge based work such as report writing and language translation. Industrial robotics are
already being used across a range of sectors including food and drink, pharmaceuticals and
cosmetics and research has suggested that many more organisations have turned to robotics and
digital technologies during the pandemic to aid social distancing, help meet increased demand for
certain goods and services and minimise the need for people to work in environments that may put
them at risk. For example, robotics and automated systems were deployed for tasks such as cleaning
hospitals, warehouses and public spaces as well as delivering food shopping to people at home. A
survey in June 2020 found that 67% of companies had accelerated their deployment of automation
and AI during the pandemic which has consequently impacted the labour market by increasing
technological unemployment and raising concerns about whether the future workforce will have the
appropriate skills needed to work alongside technology.
Despite structural unemployment being difficult to overcome because of how engrained some jobs
that are no longer needed used to be in an economy, there are ways it can be overcome. However,
to solve the problem of structural unemployment, deliberate action needs to be taken and workers
usually need to be willing to learn new skills, adapt to using new products, change industries or
physically move to new locations. When structural unemployment becomes an issue in a country’s
economy, the government are often forced to intervene and implement policies such as subsidising
the move to a different area for work and minimising unemployment benefits to relocate jobs and
incentivise work for the unemployed. Ultimately, structural unemployment is seen as a more
severe form of unemployment compared to frictional, seasonal and cyclical unemployment as it
occurs when there are fundamental changes to the economy that change the demand of services.
Instead of people losing jobs due to short term reasons, structural unemployment is mainly caused
by changing consumer preferences meaning certain jobs are no longer needed which takes a long
time to resolve in comparison to other types of unemployment.
Cyclical unemployment
Cyclical unemployment is the main cause of high unemployment rates and is caused by the
downturn in the business cycle when labour forces are reduced as a result of fluctuations in the
economy such as recessions. When the economy is experiencing a boom and is at a period of
continuous growth, the rate of cyclical unemployment is low as during a boom, sales and income
increase therefore more workers are needed to meet the demands of the labour market.
On the contrary, the rate of cyclical unemployment is high during a recession or a prolonged period
of economic decline due to the decease in consumer demand for goods and services. During a
recession, consumer demand for goods and services drops significantly which inevitably leads to a
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