Cyclical And Structural Unemployment example essay topic

There are always some people who are unemployed in our community. This is because of the four different types of unemployment. These are frictional, seasonal, cyclical and structural. This essay will explore briefly over what the different types of unemployment are, then in depth, cyclical and structural unemployment will be analysed. This is to give an outline and to evaluate different policies designed to correct these two types of unemployment. The essay is then concluded with the economic effects that unemployment has on the economy.

One case of unemployment, knows as frictional unemployment, is voluntary. Frictionally unemployed workers have chosen to move from one job to another to seek better pay, or to look for better opportunities (Vinay, 2002). The other unemployment categories are involuntary, because people have been displaced from their job. Seasonal unemployment affects occupations such as fruit pickers, fishermen and shearers, where they are only employed during certain times of the year because of the nature of their work.

Both frictional and seasonal unemployment are usually short-term unemployment (Panos, 1988). Cyclical unemployment occurs in the downswing phases of the trade cycle. When the level of spending in the economy is insufficient to purchase the goods and services for sale, firms will find it necessary to put off some of their labour. Cyclical unemployment rises and falls in line with changed in economics activity (Mocan, 1999). In periods of high economic activity there are more job vacancies and the unemployment rate decreases and vice versa.

In these periods of low economic activity it tends to be associated with rapid rises in unemployment, but recovery from recessions tends to take longer periods of time to feed through into the market for labour (Christie, 2003). The fact that cyclical unemployment rises quickly, but falls slowly, might have something to do with structural unemployment if employers replace labour with more productive capital equipment to save costs when the economy is tight (Mocan, 1999). The recession in 1990-92 has been characterised as an important case of cyclical unemployment. Recessions are reduced levels of demand for goods and services.

Unemployment follows as costs must be reduced. So from this, businesses tend to react by employing machinery instead of labour (Pearlman, 2002). Structural unemployment is the impact of changes in the framework of the economy on the demand for labour. Structural change is caused by technological change, which usually means that the demands for some types of workers increase, while others find their skills are no longer relevant (Ehrbar, 1983). Examples of these are computer operators replacing typists, bank tellers replaced by automatic teller machines and driveway attendants replaced by self-serve petrol pumps.

Structural change is also caused by changes in consumer demand. This results in job losses in some occupations and gains in others. An example of this is compact discs which replace records. This lead to workers not needed in the record factories (Hart, 1990). For a few people, structural unemployment will be temporary. Workers willing and able to be retrained with new skills will find that new categories of jobs emerge.

For example, unemployed typists may find new jobs in desktop publishing. But it is very likely that a large number of those who are unable or unwilling to retrain may find that they will be unemployed for a longer period of time (Dennis, 1985). Inflation may also have been a cause of structural unemployment, if it contributed to business uncertainty and rising costs. Increased costs which are not matched by higher production make it more difficult for firms to operate profitably (Christopher, 2000). These different types of unemployment have serious economic and social effects. Unemployment represents a waste of productive labour resources.

Unused or idle resources make no contribution to production, leading to a less income. The economy will produce less goods and services that it potentially could if resources were fully employed (Norris and Sloman, 2002). (Norris and Sloman, 2002) Here unemployment is represented by point B, which lies inside the production possibility frontier. Any point on the frontier, such as point A, represents full employment of resources. The distance between A and B is known as the Gross Domestic Product (GDP) gap. the gap represents an economy inside its production possibility curve, foregoing output, income and welfare as a result (Norris and Sloman, 2002). High unemployment creates pressure on the government budget.

Unemployment reduces the total taxation receipts the government receives because people without an income do not pay income tax. This places a drain on the government funds as the unemployed claim the Job Search Allowance. As well as this monetary cost, unemployment has a real cost. When more government money is devoted to welfare, there is less available for other community wants such as education and health (Anonymous, 2002). From an economic point of view, unemployment may bring some benefits, as well as costs. Frictional unemployment is often a reflection of the fact that workers want to move to more highly paid jobs.

Unemployment is also a sign that structural change is taking place. This usually brings benefits in the long run. For example, employment opportunities may decline in agriculture, but emerge in other industries. Therefore, the labour market is adapting to changes in the economy (Norris and Sloman, 2002). The social costs associated with unemployment are significant.

For the individual, unemployment may bring about a sense of frustration and failure (Wilkinson, 2000). For many people, being unemployed means living in poverty with a loss in status and self esteem. The social costs of unemployment can manifest themselves in a variety of ways such as deteriorating physical health, psychiatric illness, increased death rates and suicides, decreased stability and increased crime (Wilkinson, 2000). As analyzed, there are four different types of unemployment. These are frictional, seasonal, cyclical and structural unemployment.

After analyzing the effects of these types of unemployment, it can be concluded that cyclical and structural affect many people and can effect there status in life. Being unemployed can lead to families being destroyed because of lack of income. Cyclical and structural unemployment is affected by economic activity, so for this reason it is usually preferred to stay in a boom or upswing for maximum employment to occur. Anonymous (2002) 'State and Local Roundup' Payroll Practitioner's State Tax Alert 2002, July, Vol 10 Iss 7 Pg 1 (15) Christie R (2003) 'The Economy: House passes benefits extension for the unemployment by 409-19' Wall Street Journal (Eastern Edition) 2003, May, Pg A 2 Christopher A (2000) 'Interest Rates' Financial Times 2000, December, Pg 20 Dennis C (1985) 'An IRA for Structural Unemployment' Challenge 1985, November, vol 28 Iss 5, pg 57 (3) Ehrbar A (1983) 'Grasping the New Unemployment obs of the 1990's' Fortune 1983, May, Vol 107 Iss 10 Pg 106 (15) Hart E (1990) 'Types of Structural Unemployment in the United Kingdom' International Labour Review 1990, June, Vol 129 Iss 2 g 213 (16) Mocan H (1999) 'Structural employment, cyclical unemployment, and income inequality' The review of Economics and Statistics 1999, February, Vol 81 Iss 1 Pg 405 (30) Norris K., Sloman J., (2002) Economics 2nd Edition Australia: Panos M (1988) 'Seasonal Unemployment, Seasonal unemployment and Unemployment Compensation: The case of the Tourist industry of the Greek Islands' The American Journal of Economics and Sociology 1988, JULY VOL 47 ISS 3 PG 315 (15) Pearlman A (2002) 'Vital Statistics' Chemical Week 2002, January, Vol 164 Iss 2 Pg 31 (1) Vinay P (2002) 'The Dynamics of technological unemployment' International Economic Review 2002, August, Vol 43 Iss 3 pg 737 (24) Wilkinson F (2000) 'Inflation and employment: Is there a third way?' Cambridge Journal of Economics 2000, November, Vol 24 Iss 6 Pg 643.