Diffrent Types Of Unemployment And The Possible Demand Side And Supply Side Policies

1669 words - 7 pages

Unemployment is a pressing economic problem across countries over different periods of time. Unemployment may be defined as the state in which individuals who are available to work and actively seeking jobs remain unemployed (Mankiw, 2007; Colander, 2004). It has adverse effects not only on individuals but also on the whole economy (Dornbusch et al, 2004). Hence, it is crucial that nations concentrate on unemployment issue and deal with it appropriately. Although some unemployment is inevitable, policies like monetary and fiscal policies are accessible ways to mitigate the severe consequences of unemployment. This essay will outline three types of unemployment and explain the possible demand side and supply side policies associated with evaluations.Generally, economists divide unemployment into three categories: frictional unemployment, structural unemployment and cyclical unemployment. Firstly, frictional unemployment is unemployment due to qualified individuals' transitions between jobs (Mankiw, 2007; Arnold, 2004). It is inevitable even when the economy is operating at full because labor demand changes incessantly, inducing people to move between jobs (Mankiw, 2007; Colander, 2004). However, the fact is that people have different abilities and preferences, while skill requirements of jobs differ, and information about jobs spreads always slowly as well (Mankiw, 2007; Dornbusch et al, 2004; Institute for Fiscal Studies Virtual Economy, nd). Hence, frictional unemployment arises because it is time-consuming for workers to find an appropriate new jobs and matching workers with jobs is not instantaneous (Mankiw, 2007; Arnold, 2004). Secondly, structural unemployment is unemployment arises because inadequate supply of jobs in some labor markets cannot meet the demand for jobs owing to economic restructure (Mankiw, 2007; Colander, 2004). Economy develops with structural changes, thus, creating demand for one kind of labor and eliminate another kind of job opportunities (Mankiw, 2007; Samuelson and Nordhaus, 2002; Arnold, 2004). Therefore, employees who have no transferable skills experience structural unemployment because of their mismatch with the new job requirements (Samuelson and Nordhaus, 2002; Arnold, 2004). Thirdly, discrepancy between unemployment and its natural rate is known as cyclical unemployment, also called demand-deficit unemployment (Mankiw, 2007). It exists when the overall output is below its full capacity (Dornbusch et al, 2004; Samuelson and Nordhaus, 2002). There is a lack of demand for labor if a nation experiences cyclical unemployment because of the disequilibrium between aggregate demand and supply in the economy (Samuelson and Nordhaus, 2002; Institute for Fiscal Studies Virtual Economy, nd). What is more, it is closely associated with business cycle, and occurs especially when the economy heads into recession (Institute for Fiscal Studies Virtual Economy, nd).Fiscal policy and monetary policy are central demand side...

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