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Questions: (a) Discuss the different types of unemployment. (20 marks)
Unemployment is the number of individuals seeking work in an economy that do not currently have a job. Unemployment has been categorized into four types: Frictional unemployment, cyclical unemployment, structural unemployment and classical unemployment. (Begg, 2009)
Frictional unemployment is the easiest type to explain and is of little concern. This type of unemployment refers to individuals who have quit one job yet searching for another. This occurs because it takes workers some time to move from one job to another. While it may be the case that some workers find new jobs before they leave their old ones, a lot of workers leave or lose their jobs before they have other work lined up. In these cases, a worker must look around for a job that it is a good fit for her, and this process takes some time. During this time, the individual is considered to be unemployed. (Beggs, J) Therefore this type of unemployment is temporary.
Unemployment is Higher during recession and lower during times of high economic growth. Classical unemployment is related to the business cycle and is sometimes also referred to as demand-deficient unemployment. It reflects workers who have lost jobs due to the adversities of the business cycle. This type of unemployment is only a concern when an economy enters recession. (Begg, 2009) When the demand for goods and services fall, most employees let go of workers instead of reducing their wages, this is when unemployment reoccurs. However when the company recovers from recession than slowly the cynical unemployment disappears.
In the case of structural unemployment, an entire industry can go into decline. The structully unemployed find it difficult to gain employment in new industries because of what is known as mismatch of skills. (Begg, 2009) They employees have skills that are not in high demand in the marketplace and lack skills that are in high demand.
(b) The Office for National Statistics recently announced that the unemployment rate was reduced to 7.8% from 7.9%. In your opinion, which type of unemployment is responsible for this reduction? Explain your answer. (20