Causes Of Unemployment

By: EconomyWatch   Date: 13 October 2010

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In the set up of a modern market economy, there are many factors, which contribute to unemployment. Causes of unemployment are varied and it may be due to the following factors:

  • Rapid changes in technology
  • Recessions
  • Inflation
  • Disability
  • Undulating business cycles
  • Changes in tastes as well as alterations in the climatic conditions. This may in turn lead to decline in demand for certain services as well as products.
  • Attitude towards employers
  • Willingness to work
  • Perception of employees
  • Employee values
  • Discriminating factors in the place of work (may include discrimination on the basis of age, class, ethnicity, color and race).
  • Ability to look for employment

    The above factors may be categorized into the following:

(I) Cyclical Unemployment

Cyclical unemployment goes hand in hand with the business cycle. Higher the GDP, lower will be the cyclical unemployment at the peak of the business cycle and the vice versa is true when the economy is in the trough of the business cycle. If cyclical unemployment rate stretches for an extended period, it may cause irreparable damage to the labor force in the country.

(II) Structural Unemployment

It is a well-known fact that everyday new products are being launched in the market. As a result, the demand for certain goods and services also changes. This leads to increase in unemployment rate in certain sectors of the economy and creates jobs in yet others. Under these circumstances, re employment may be possible if the worker relocates or migrates to other sectors (in demand).

(III) Agricultural Activities

It has also been observed that if there are undulations in the agricultural sector (due to factors like low production, drought, famine or natural disaster), the effects are felt in agribusiness. This may also be regarded as one of the factors in unemployment.


(IV) Hard Core Unemployment

Hard core unemployment usually results when a worker is disabled and is not in a position to work. The worker may also give up his job after a few days due to dissatisfaction with the wage.

Unemployment at any given point of time may be either due to one of the factors mentioned above or a combination of several factors (mentioned above).

It has also been observed that if the labor market in the economy does not work in an optimum manner, it leads to unemployment. There are other factors, which point at the tempo of an economic activity in a region.

Measures For Reducing Unemployment Rate

Framing economic policies, improving labor mobility, assisting in developing enhanced work habits are some of the measures, which may be taken to deal with unemployment. Extending unemployment insurance benefits is also a means of rendering financial protection to the unemployed. This system was first introduced during the period of Great Depression (1930s).

Macro Economic Stabilization Policy

In order to cater to the needs of the unemployed, the government has introduced the macro-economic stabilization policy, which aims at providing financial assistance to the workers till the time of recovery in the economy.

 

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