Nicole Bostan

Economics HL

Type of
Unemploy
ment

Description

Solutions

Frictional

includes workers
who are either
searching for jobs or
waiting to take jobs
in the near future. It
is recognized as
natural
unemployment
(natural for people
to leave jobs in
hopes of finding a
better one)
[transitioning jobs,
recently graduating
students]
No negative
outcome in any
dynamic economy

People move
to another job
so they
become more
productive, as
they like it
more

More
contribution to

-government reduces frictional

unemployment
-lower unemployment benefits
[people have little incentive to
find a job if benefits are
generous] -> encourage people to
take available jobs-> willing to
work -> increase AS of labor
-improving flow of information
[sometimes people can be not
aware of the available jobs] ->
job sites, newspapers, job
centers, employment counsellors
-> interventionist approach

Diagram

Equilibrium/Disequil
ibrium
Equilibrium - People
are not willing or not
able to take the work

Nicole Bostan
Economics HL

Structural

economy
Short term
nature

it is caused by
changes in the
structure in demand
for consumer goods
and in technology.
The fall in demand
for a particular labor
has to be
permanent. This
category includes
workers who are
unemployed
because their skills
are not demanded
by employers
because they lack
sufficient skills to
obtain employment
or because they
cannot easily move
to locations where
jobs are available.
For example coal
miners, a job that
may disappear in a
region. They can't
take new types of

-education system training people

to be more occupationally
flexible. People have to able to
learn skills fast and adapt to
changing conditions
-adult retraining programs to help
people acquire necessary skills
-give subsidies to training firms
-provide subsidies or tax breaks
to encourage people to move to
the areas with the demanded job
-> geographical mobility
-support apprenticeship programs
-reducing unemployment benefits
-> people take available jobs
-deregulation of labor markets
that reduce flexibility -> remove
legislation that businesses must
follow hiring, firing and
employment practices.
--disadvantages-*high opportunity cost for
governments
*only effective in long term
*inequity in economy [lower living
standards for some]
*worse working conditions if

Equilibrium

Nicole Bostan
Economics HL

jobs such as
deregulations of labor market
software
applied
engineering.
Technology makes
certain labor
unnecessary, like
ATMs. Structural can
be also due to
lower-cost labor in
foreign countries.
Third cause can be
change in
consumers' taste
Seasonal

Some workers are

employed on
season basis. Thus,
demand for certain
workers falls at
certain times of the
year. For example
tourism works in
season [no need of
a ski instructor
during summer]

-encouraging people to take

different jobs in their off season
-reduced unemployment benefits
-greater flow of information
-frictional unemployment
solutions apply

Equilibrium

Real wage
(classical)

Caused by trade
union and
government
intervention
(minimum wages)

-government should reduce the

ability of unions to negotiate
higher wages. Minimum wage can
be reduced or abolished ->
[greater inequity, harm to poorest

Disequilibrium - Any
condition that prevent
the labor market from
clearing

Nicole Bostan
Economics HL

interfering in the
workers]
labor market. Trade
unions negotiate
higher wages
(above equilibrium).
Thus AS for labor is
greater than ADl ->
surplus of labor

Demand
Deficient
(cyclical)

Caused by the
recession phase of
the business cycle,
that is by a
deficiency of total
spending. As the
overall demand for
goods and services
decreases,
consumers spend
less, firms reduce
output, less labor is
needed, so
employment falls.
Wages are sticky
downwards,
meaning that while
workers' wages can
easily increase it is
less likely that real

-government intervenes to bring

increase in AD through fiscal and
monetary policies
-increased government spending
-decrease taxes -> increase
household consumption and
investment
-decrease interest rate or
increase money supply

Disequilibrium

Nicole Bostan
Economics HL

wages will
decrease.
Unemployment is
created at a-b,
where AS is greater
than AD because
wages are stuck at
We.