Explain the causes of unemployment and consider which is most likely to occur in a developing country. [12]

Cambridge A level June 2021 Paper 4

Unemployment is defined as people who are out of work but, have actively looked for a job over the previous four weeks and who are available to work within the next two weeks.

Unemployment rate is the percentage of the labour force that is unem ployed while labour force consists of those who are employed and unemployed.

Classical economists identify two broad categories of unemployment: equilibrium unemployment (NRU) and disequilibrium unemployment (real wage unemployment).

Disequilibrium or real wage unemployment is where trade unions use their monopoly power to derive wages above the mar ket clearing level resulting in an excess supply of labour Governments introducing minimum wage legislation could also contribute to this.

However, when there is no general disequilibrium in the economy at the current wage levels, there will still be some unemployment.

This is known as the natural rate of unemployment.. For various rea sons not all vacancies will be filled.

The problem is one of the mismatching. There are various types of equilibrium unemployment.

Frictional unemployment is one of the forms of NRU It is a transitional unemployment due to people moving between jobs For example, newly redundant workers entering the labour market for instance, university graduates, may take tune to find appropriate jobs at wage rates they are pre pared to accept.

Thus, many are unemployed for a short tunc whilst involved in job search Imper fect information in the labour market may make fric tional unemployment worse if the jobless are un aware of the available employment opportunities Structural unemployment is another type.

It arises from changes in the pattern of demand or supply in the economy.

People made redundant in one part of the economy due to a long run decline in de mand in particular industries cannot immediately take up jobs in other parts or other industries.

Hence, structural unemployment exists where there is a mismatch between their skills and the require ments of the new job opportunities.

Seasonal unemployment occurs when the demand for certain types of labour fluctuates with the seasons of the year For instance, employment in fruit picking and holiday catering is seasonal in character The difficulty is that the skills required by different seasonal jobs are not substitutable Keynesian unemployment is referred to as demand deficient or cyclical unemployment.

The term cycli cal unemployment entails the alternate booms and slumps in the level of economic activity due to the fluctuations in aggregate demand Unemployment increases when aggregate demand is too small, there being a deficiency of demand for goods and services Since labour is a derived demand, the lack of demand for goods and services will also lead to a deficiency of demand for labour.

In developing countries, usually there is a vast open demand deficient unemployment and dis guised unemployment.

Generally unemployment has spread with urbanization and the spread of education because the manufacturing sector fails to expand along with the growth of labour force So, there is unemployment among the educated who fail to find jobs due to the lack of manpower planning.

Then there is concealed or disguised unemployment This is when the workers are un able to find work throughout the year Generally persistent high unemployment in developed coun tries is attributed to undeveloped natural re sources, lack of capital formation, technological backwardness and lack of enterprise and initiative.

So, high unemployment in these countries persists in the long run due to an ongoing deficiency of AlL because their economics continue to operate below their capacity.