Unemployment caused by seasonal variations in demand/ by fluctuations in some activities at some period during the year. During the summer months the tourist industry is much busier than winter time and so this industry will employ more workers. These workers may then lose their jobs during the winter months.
This type of unemployment occurs when there is a change in the pattern of demand for a particular skill set. Changes in the pattern of economic activity in an economy/ Industries are unable to adapt or compete in the face of changing demand or new products. New technologies have displaced skills e.g. prefabricated buildings have displaced block layers.
This arises due to obstacles to the mobility of labour or the removal of the incentive to work. It can arise when there is a shortage of housing in areas where jobs are available; when the gap between Job Seekers Benefit and take-home pay in available jobs is so small that there is no incentive for the workers to take up employment. The existence of closed shop practices in workplaces.
This type of unemployment occurs when people are ‘between jobs’. The unemployment results because of the time it takes for workers to search for the jobs that best suit their tastes and skills. Workers will leave one firm and move to another. The period when they are searching for new employment causes ‘frictional’ unemployment due to the normal working of an economy: workers quit to find better jobs; employers let workers go to replace them with better workers.
This type of unemployment arises due to fluctuations in the business cycle (Keynesian unemployment). Cyclical unemployment arises due to downturns in the economy. In theory those who lose their jobs in the downturn should be re-hired in the recovery phase of the cycle. The deviation of unemployment from its natural rate.
Student Checkpoint: Q16 (A) (iii) page 35
Government policy response for each unemployment type.
This type of unemployment requires that workers be retrained into areas of employment that are needed e.g. ‘Springboard’ programme/ focus on the characteristics of the unemployed person in an effort to make them more employable.
Firms could try to extend their season e.g. hotels could try to attract customers e.g. offer different packages to attract customers at different times of the year.
Improve geographical mobility of labour and try to make it easier for families to move houses. Offer incentives to take up employment e.g. a reduction in the rate of income tax / reduction in USC for workers who leave social welfare schemes. Try to liberalise working practices so that no barriers to employment exist.
Provide retraining schemes for workers/ Aim to provide a better match of workers skills with employers e.g. SOLAS / Internet/Reduce workers search periods between jobs, by ensuring workers are aware of job vacancies.
Policymakers should use monetary and fiscal policy to counteract this type of unemployment i.e. take measures to stimulate aggregate demand.
Define the following: Wage drift and Cyclical unemployment
Past Exam questions:
(i) Outline the major causes of the current increases in unemployment in the Irish economy.
(ii) Discuss economic policies which the Irish government might pursue in order to reduce the level of unemployment.