Question

Until the late 1960s, most economists assume that less unemployment was preferable to more unemployment. Define and explain the two types of unemployment that are consistent with a dynamic, growing economy.

Answer 1

The two type of Unemployment consistent with the growing and dynamic unemployment are:

• Cyclical unemployment: Cyclical unemployment is caused due to fluctuation in the economy. The economy grows in the business cycle of expansion and recession the unemployment caused due to recession in the economy is called cyclical unemployment. Cyclical unemployment is not always a matter of concern because it goes away with increased output when the economy comes back to the normal level of output.
• Structural unemployment: Structural unemployment is caused when the technology and skills are upgraded with time in the economy. For example, the economy moving from a typewriter to the computer will leave the typewriters unemployed because they don't have the necessary skillset to operate a computer. This unemployment caused due to outdated skill is structural unemployment. The economy can't do much about this too because this is natural and a new skill will emerge soon reducing the unemployment.