Causes Of Unemployment And Its Effect On The Economy

2406 WordsApr 8, 201510 Pages
Empirical research aims to decompose causes of unemployment into those that changed equilibrium and those that caused demand-deficient unemployment. A potential explanation of a rise in the equilibrium unemployment is a rise in the generosity of unemployment benefit relative to wages in work. Therefore people spend longer periods of time unemployed in search for the ‘right’ job, thus leading to a rise in equilibrium unemployment. (Begg, 2008, p. 530) In economics, the neoclassical view is that the government should not intervene with the market–that is, the optimal economic structure is a free market. Therefore, the a neoclassical economist would argue that unemployment is often caused by the government who makes it difficult for employers to fire employees, which causes employers to hesitate employing new workers thus resulting to an increase in unemployment rates. (Bryan’s blog) As the Napoleonic Wars finished in 1815, the economy was followed by a recession and unemployment. Thomas Malthus (1766-1834) was the first to identify a lack of effective demand as the problem – the warehouses were full but people would not buy. However, David Ricardo (1772-1823) disagreed with Malthus about the lack of effective demand. Instead he argued that unemployment was due to the wages being too high: if people would accept lower wages they would find work. (Dobson, 1999, p. 176) John Maynard Keynes (1883-1946) argued, like Malthus, that this unemployment was primarily due to a failure of
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