types and causes of unemployment

• What are the two major groups of unemployment?

  Disequilibrium unemployment and equilibrium unemployment
• What is equilibrium unemployment also known as?

  The natural rate of unemployment
• What types of unemployment can occur when the labor market is in disequilibrium?

  Cyclical unemployment and real wage unemployment
• What is cyclical unemployment also known as?

  Demand deficient unemployment
• When does cyclical unemployment occur?

  During a recession when there is a lack of aggregate demand
• How can a leftward shift in aggregate demand affect unemployment?

  It can lead to higher cyclical unemployment
• Why is labor considered a derived demand?

  Because labor's demand comes from the demand for goods and services
• What happens to firms' revenues during a recession?

  They decrease, leading firms to cut costs, including labor
• What are some causes of a leftward shift in aggregate demand?

  Increased interest rates, falling income tax, and reduced consumer confidence
• Why do Keynesians argue that cyclical unemployment persists during a recession?

  Because wages are sticky downwards, preventing market clearing
• What is real wage unemployment also known as?

  Classical unemployment
• What causes real wage unemployment?

  Wages being forced above equilibrium, creating excess supply of labor
• How does a higher wage rate affect labor demand and supply?

  It decreases labor demand and increases labor supply
• What can cause wages to be forced above equilibrium?

  Government intervention with high minimum wages and strong trade unions
• What is equilibrium unemployment?

  Unemployment that can occur even when the labor market is in equilibrium
• What is the natural rate of unemployment?

  The best an economy can achieve in equilibrium, still with some unemployment
• What are the three types of unemployment within the natural rate of unemployment?

  • Structural unemployment
  • Frictional unemployment
  • Seasonal unemployment
• What is structural unemployment defined as?

  The immobility of labor due to long-term changes in the structure of an industry
• What are the two types of immobility of labor?

  Occupational immobility and geographical immobility
• What is occupational immobility of labor?

  A skills mismatch between workers' skills and job vacancies
• What is geographical immobility of labor?

  When workers are not willing or able to move to where job vacancies exist
• What can cause structural unemployment due to a shock to an industry?

  Technology advancements that automate jobs
• What happens when an industry loses its comparative advantage?

  It can lead to a decline in demand and structural unemployment
• How can changes in the economy lead to structural unemployment?

  Through modernization and the need for new skills as industries transition
• What can hinder the education system from keeping up with the pace of change in skills needed in the economy?

  Poor quality education systems and lack of resources
• What historical example illustrates occupational immobility in the UK?

  The decline of manufacturing jobs in the Midlands and North
• What is the relationship between structural unemployment and changes in industry structure?

  Structural unemployment arises from long-term changes in industry structure
• What is the significance of understanding the natural rate of unemployment?

  It helps to recognize that some unemployment is always present in a healthy economy