What are the causes and effects of unemployment rates?

Question

What are the causes and effects of unemployment rates?

Answer 1

Economists believe there are four types of unemployments:

Frictional unemployment

Classical unemployment

Structural unemployment

and Cyclical unemployment.

To investigate the cause of unemployment, let us examine each of the type of unemployment.

Frictional unemployment refers to unemployment due to the search time required for finding a job. This refers to the period between the job separation and job finding. It is inevitable, as people tend to switch jobs to attain higher utility, and not forgetting that it takes time for fresh grad to find a job as well.

Classical unemployment refers to the unemployment due to high real wage. Typically, such unemployment is due to minimal wage law set by the government, or in industries that has very strong union. When the cost of hiring is high, employers will intuitively demand for lesser labour, which effectively leads to classical unemployment.

Structural unemployment is unemployment due to change of job requirement, and most of the time, is caused by technological advancement. For instance, the invention of fax essentially reduce the need for individuals to send letters by mail. This leads to decrease in demand for postman, which leads to a certain proportion of postman getting out of job.

Cyclical unemployment is essentially the unemployment due to the booms and busts of the economic cycle. This is dependent on the stability of the economy and society as well.

Having discussed the causes, let us look at the effects.

High unemployment will leads to, first of all, low inflation given by the Phillips curve. This is one of the challenge faced by policy makers, as they need to balance between to two to optimise the health of the economy.

Other externalities includes politically, negative impact on votes for the governing party, as unemployed individuals tend to put all the blames on the government, which leads to dissatisfaction and political instability.

Answer 2

People continue to purchase things made in China, Japan, Mexico or wherever other then USA, so .. Companies move to other countries where they can legally hire children to work for pennies to make things for your home!

Want American Jobs? Buy American Made!