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The Causes of Unemployment

  • Date Submitted: 10/28/2011 03:14 AM
  • Flesch-Kincaid Score: 39.6 
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The Causes of Unemployment
According to the Keynesian economic theory, unemployment results from insufficient effective demand for goods and services in an economy. Some believe that structural problems and inefficiencies in the labor market cause unemployment. Others believe that regulations like minimum wage laws imposed on the labor market lead to unemployment. Some thinkers believe that unemployment is a result of the law of demand and supply not being applied in case of employing people. A decline in the demand for products or services of a company does not result in the decrease in wages of the company employees. And this may strike an imbalance in the economy. The causes of unemployment need to be analyzed carefully to find a solution to this calamity called unemployment, which eclipses life.
Frictional Unemployment
This is voluntary or transitional unemployment due to people moving between jobs: For example, newly redundant workers, or workers entering the labour market for the first time such as graduates and school-leavers take time to find jobs at wage rates they are prepared to accept.  Many of the frictionally unemployed are out of work for a short time whilst engaged in job search.
Imperfect information in the labour market may lead to frictional unemployment if the jobless are unaware of the available jobs. Often this information failure is localised – for few workers scan the vacancies available across the whole economy, they tend to restrict their search for work to a local area.
Incentives to look for work are also important! Some people may opt not to accept jobs at prevailing market wage rates if they believe the income tax and benefit system will reduce the net increase in income people can expect from taking paid work. This problem is referred to as the unemployment trap.
Structural Unemployment
Structural unemployment occurs when people are made jobless because of ‘capital-labour substitution’ which reduces the demand for labour in...


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