Question

What are the causes of unemployment?

Answer 1

There are 4 causes and categories of unemployment.

(1) Structural unemployment arises due to a mismatch between skills required by the employers and the skills possessed by the workers. This form of unemployment is mostly a result of technological advancement or corporate reorganization, and is independent of demand of supply shifts.

(2) Frictional unemployment arises when a fresh job-seeker is searching for a job after passing out from college, or when a job-seeker is looking for employment in between two jobs.

(3) Cyclical unemployment arises due to changes in business cycle. When the economy goes into a recession, aggregate demand falls, so firms lower production and output, hiring less labor. This gives rise to higher unemployment.

(4) The fourth reason and form of unemployment is caused by a change in season. A seasonal unemployment arises when an employee loses a job which was dependent on the season, for example, an ice-cream seller losing his job in winter.