Causes and Effects of Unemployment

2314 Words Nov 15th, 2012 10 Pages
Causes and Effects of Unemployment Unemployment defined by the Encyclopedia Britannica is the condition of one who is capable of working, actively seeking work, but is unable to find any work. In addition, to define a person as unemployed, the person must be an active member of the labor force in search of work. (Encyclopedia Britannica, 2012) There are three different types of unemployment: frictional, structural, and cyclical. Due to various causes in the economy, there will always be a certain number of people that are frictionally or structurally unemployed. However, cyclical unemployment only happens when an economy is in a downturn. Cyclical unemployment signifies a decrease in the GDP. Unemployment produces many unpleasant …show more content…
Technological changes lead to unemployment due to developments of labor saving technology. This allows for less demand of the labor force in the industry. Overall, structural unemployment is the mismatch of skills of the person to the jobs available. There are numerous reasons for structural unemployment. Due to this, economists expect there will always be some level of structural unemployment. (Tucker, 2008) Cyclical Unemployment Unlike frictional and structural unemployment, cyclical unemployment is when the economy is in a downturn. Cyclical unemployment happens because employers cannot sell enough goods to keep their employees. This has a direct link with the GDP. As the GDP goes down, the unemployment rate grows. This drop in GDP signifies a recession. (Tucker, 2008)
Barriers to Job Creation Certain barriers in job creations can increase the length of time unemployment last. Three barriers to job creation are minimum wage, taxes on corporations and business, and regulatory and licensure laws. Simply put, a business or industry will create jobs where it is most cost effective and beneficial for it. Minimum wage hinders job creation because if it cost more to hire someone than the job is worth then a business will not create the job. Taxes on business and industries can also be a barrier to job creation. If the cost becomes too high for a company it
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