Unemployment could be defined as the state in the economy where there are many people who are willing and able to work but they do not get a chance to employ their skills to the growth of the economy. Such people with the necessary skills and knowledge, and willing to work at the prevailing wage rate yet do not have jobs are regarded as unemployed. The economy with many of such people is said to have a high level of unemployment. Unemployment has very serious implications in the economy where it exists. For instance, it results to high wastage of the scarcest resources like time because the number of hours that the unemployed people do not work cannot be recovered by the economy.
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The following essay is concerned with the causes of unemployment as it relates to economic principles. There are several factors that cause unemployment with regards to economic principles and they include the following;
This refers to the type of unemployment that is brought about by seasons. This type of unemployment is depend largely on the times of a year i.e. seasons are characterized with the emergence as well as exit of jobs. This type of unemployment is associated with those who work in restaurants and retail shops. The jobs are available during specific times of the year and thus seasonal unemployment causes people to use their skills at certain periods of the year. Some of the industries that are greatly affected by this type of unemployment include the tourism industry, Santa stores among others. Employees are thus laid off at certain times of the year for instance the employees at construction industries are employed during summer and laid off during winter (Hobson, 2006).
Frictional unemployment usually arises when people relocates from one employment into another. People might be relocating across the nation or switching jobs or they might be looking for a first employment. There are costs that are associated with finding a job and also thus if a person decides to quit his or her previous job in order to find another job, the period that one remains unemployed is thus the frictional unemployment. The cost of moving from one place to another may make it difficult for a worker to change his or her place of work.
This cost may include the cost of moving the family and the possessions. Many people are reluctant to tear up their roots i.e. to leave behind friends and relatives and face the prospects of establishing new social relationships in a strange environment. Also, many families will tend to be immobile at certain stages of their children’s education. This situation is common where a country is operating a different system of education from another. The existing social class that a person has also provides some restrictions as far as the occupational mobility of labor is concerned. Thus an individual may not want to work in a place where he or she cannot continue to enjoy the kind of social class that he or she used to e.g. prestige schools e.t.c.
This language or semantic barriers common where a country is operating a different system of education from another. The language or semantic barriers may restrict a worker from migrating to another country. Also, the immigration procedures placed by different governments restricts the movement of foreigners into a country. Some professionals require or demand long periods of training e.g. medicine. The duration of time required fro training may also restrict people from getting into an occupation. All these factors will act as a barrier towards employment and thus they can make one to remain jobless. Labor is the most mobile factors of production both geographically and occupational.
The lack of provision of information on regional job opportunities usually causes people to be frictionally unemployed. In order to prevent the occurrence of this type of unemployment, the employment exchange job centers should be established so as to enable employers and potential employees to be more fully informed. Employers can enhance geographical mobility of labor by providing assistance with regards to the cost of movement. This form of unemployment is also attributed to the occupational mobility of labor. This is due to the fact that some jobs requires people who have certain natural abilities and those with natural abilities forms a small proportion of the population e.g. surgeons, designers, entertainers e.t.c.
In order to establish one person in a particular occupation, capital is needed so as to purchase the necessary stock and equipment. This may be costly especially for professions such as dentists and hence a barrier to the prospective candidate (Köhler, 1999).
This is also refereed to as demand efficient is a form of the Keynesian economists and it arises as a result of insufficient demand in the economy for employing those people who are willing and ready to work. Cyclical unemployment thus focuses on the disequilibrium that exists in an economy. Usually it varies in accordance with the trade cycles hence the name cyclical. Trade cycles entails the frequent periods of economic downturn as well as affluence which generally occurs in a country.
The trade cycles have various phases which include peak period, booms, recovery as well as depressions. The cycles occur in form of waves. During depression, there is high rate of unemployment as compared to the peak period or boom. As the economy continues to deteriorate, the number of people who are unemployed increases due to lack of jobs. Thus it represents a situation whereby, people are willing to work but the state of the economy does not allow them to work.
The hard economic times which were brought about by the global economic recession made companies to cut jobs. The global crisis was associated with weak global growth and exports shrink making commodity prices to plunge. The uncertainty that gripped the world economy slowly manifested itself in the corporate sector where executives were under pressure to put in place measures that will keep their companies afloat in the face of a receding global economy. Job cuts was among the measures that was proposed and as a result many people became unemployed (Taylor, 2006).
This is a form of unemployment that is usually brought about by the technological changes. This form of unemployment is usually unavoidable and there is nothing much that can be done in order to stop it from occurring. The state of technology is advancing at a faster rate implying that many jobs are being eliminated. For instance, the machines have been used to break up complex processes into series of separate and simpler tasks.
The machines thus have used to carry out individual operations due to the fact that they are time saving and also effort saving. The use of machines has brought about loss of craftsmanship and so the basic skills have been transferred from the worker to the machine i.e. machines controls the design, quality as well as quantity of the product. The craftsmanship of an industrial worker has thus declined over the years due to technological advancements.
The loss of craftsmanship has brought about increased risk of unemployment. The use of machines means that workers do not have wider industrial training and experience which will make them adaptable to changes in production techniques. If for some reason their skills are no longer required, it is very difficult to find alternative employment elsewhere. The introduction of machines thus causes a worker to lose his or her job. On the other hand, there is too much data on the internet implying that most people will be jobless as the companies will opt to use robots as well as computers to perform most of the tasks so as to enhance efficiency as well as effectiveness.
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Another cause of unemployment is the inflation. Inflation is concerned with the persistent increase in the prices of goods as well as services. It represents a situation whereby, the aggregate demand with regards to goods as well services exceeds the output supply. Inflation discourages savings and therefore the spending anxiety is increased. It increases the profit margins implying that the debtor’s gains while on the other hand the creditor’s stands to lose. Inflation is caused by an increase in the supply of money which is unaccompanied by an increase in the output of products and services.
It also arises as a result of an increase of peoples spending which is characterized by a greater demand with regards to the economic output hence raising the prices. Increase in wages which is unaccompanied by an increase in the output also causes inflation. Inflation has adverse effects as far as unemployment is concerned. During inflation, the exports tends to be more expensive as compared to the imports and most companies refrains form employing people due to the increased pressure on the wage amounts. The correlation that exists between inflation and the unemployment is an inverse one implying that a high unemployment rates are characterized by lower rates of inflation and the reverse is also true.
Inflation often leads to income redistribution and it is advantageous as well as harmful to some people. According to economists, there must be a given unemployment rate that should be retained so that the buyers can have the capacity to buy the commodities and in turn enhance their living standards. However, an increase in the employment rates often has an effect with regards to the employees.Fluctuations in the employment rates affects both the uneducated as well as the educated workers.The fluctuations in the employment rates is more beneficial on the part of the employers as compared to both the skilled and uneducated employees(Taylor, 2006).
Structural unemployment arises as a result of the changes of a particular industry for instance the exploitation of natural gases and other minerals. Also structural unemployment arises in a situation whereby the skills that one possesses do not match with the job requirement skills. This form of unemployment extends for a longer period of time as compared to the frictional form of unemployment. When an economy continues to deteriorate, the people who have not secured a job loses hope of being employed in the future. Their skills that they posses also rust and they become inactive as far as job searching is concerned. Those who owe others find themselves in greater trouble as their properties can be auctioned in order to pay the debts. They thus find themselves being homelessness and this implies that they are not regarded in the future period once job openings arise as they have already fallen into the poverty cycle.
Economic theory thus plays a major role as far as the unemployment is concerned because it determines the manner in which people lives and interrelates with others. Thus the structural form of unemployment provides a scenario whereby the decisions that are made have an impact to unemployment for instance, the privatization of industries, environment protection e.t.c.
Real wage or classical unemployment
The classical or real wage unemployment theory is concerned with wage rates that are above the market-clearing levels. Basically, when the real wages are held above this level, more people becomes unemployed as compared with the number of the available vacancies. Also, minimum wages are characterized by an increased rate of unemployment due to the fact that companies tend to employ those people who have grater skills and thus leaving behind those with no or lower skills.
The mere act of determining the minimum wage is important as it raises the living standards of employees and hence enabling them to flee from poverty.Most companies tends to retain workers who are less skilled instead of laying them off and thus they ends up paying them minimal wages which is not sufficient to cater for their needs. Due to the high level of unemployment, workers have no option but to continue working in such a company for fear that they will not get a job immediately once they quit their present ones.
Companies also refrain from employing many people due to the reason that the cost of hiring them would be greater as compared to the contributions that the employees can indeed bring into the organization. Classical unemployment is believed to increase as a result of intervention by the government i.e. the more the government tries to improve the wellbeing of the employed people, the more the classical unemployment occurs. For instance, the minimum wages often leads to an increased cost of the employer who doesn’t have the greater skills over the equilibrium of the market and thus making the potential employees to become unemployed. The rules that restricts the retrenchments also has an impact as far as unemployment is concerned in that, most companies refrains to hire due to the risks that are associated with hiring process. This in turn causes many young people to remain jobless (Köhler, 1999).
Hidden unemployment refers to a situation whereby the employees are underemployed i.e. the unemployment statistics fails to reflect the majority of the unemployed people. This form of unemployment entails that only a few people who are actively searching for employment are being considered to be jobless. The unemployment statistics thus don’t consider the majority of the people who have given up on finding a job, the majority who earns little income and also those people who works at organizations where their skills tends to be underutilized ( Hobson,2006).
Dumping of goods
Dumping of goods often leads to unemployment because it leads to predatory pricing i.e. it makes the goods of a country to lose value as consumers tends to purchase the cheap goods from other countries. This has harsh consequences as far as the workers of the local industries are concerned. Dumping is a threat with regards to the existence of a local industry as it renders the workers jobless. For instance, workers who work in textile industries particularly in less developed nations have been affected by dumping due to the availability of cheaper clothing in the market.
Dependence on the primary sectors. E.g. agricultural, fisheries and forestry sectors
This is dangerous and often leads to unemployment following the collapse of the key sectors. Dependence on the primary sectors entails that a worker only acquires particular skills only and the collapse of the sector means that the worker can not be employed in another different sector as he or she don’t have the required skills (Taylor, 2006).
There are numerous benefits that are associated with international trade. However, the competition as a result of international trade tends to be stiff and this has an effect as far as unemployment is concerned. According to Keynesian theory of economics, a deficit in trade implies that the aggregate demand is depressed as a result of an increase in the production of commodities by other countries which competes with the ones that are exported by a country. Therefore, globalization can lead to collapse of local industries due to competition and this in turn causes unemployment.
Also, globalization has an effect with regards to unemployment in that when a nation that has plenty skilled labor trades with another one which don’t have limited supplies, there is an increase with regards to skilled labor’s demand and this in turn helps to reduce the unskilled labor’s demand( Hobson,2006).
There has been a reduction in demand for the unskilled workers during the past few years. Most people nowadays have acquired various skills on certain areas and so, the employees are opting to employ only the qualified candidates so as to drive their businesses to greater heights. This reduction for the demand of unskilled workers is common in developed nations whereby the majority of the population is literate. Technological advancements i.e. innovations as well as inventions have been the major factors that have worked against people who have less skills. Training as well as work experience also has an effect as far as the demand for skilled labor is concerned in that employers opt to hire those workers who are well trained and have an employment history as compared to the ones withy no or little experience (Köhler, 1999).
A person who is unemployed receives no remuneration and he or she is greatly disadvantaged by the fact that he or she is unable to purchase products as well as services. The unemployment condition has some effects as far as the person’s wellbeing is concerned. It causes one to suffer both mentally and physically. Those persons who are employed and have acquired greater skills through education lives a healthier life as compared to the ones who are unemployed. Unemployment is caused by the above economic principles factors.
.In order to reduce the problem of unemployment, the following measures should be taken; providing of retraining schemes where people can learn skills which they can use to find alternative employment, arrangement of financial assistance for people to start their own businesses, provision of information on the opportunities available through the employment exchange programs as well as legislation in order to reduce trade unions and professional barriers to enter into different occupations. The employers should also link the movement from one job to another with higher wages or promotion so as to encourage people from relocate to other areas.
Hobson, J. (2006).The Problem of the Unemployed. An Enquiry and Economic Policy. Chestnut Hill: Elibron.com.
Köhler, W. (1999). Macroeconomic causes of unemployment: diagnosis and policy recommendations. Berlin: Duncker & Humblot.
Taylor, J. (2006). Economics. Stamford: Cengage Learning.