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Part 2
Solutions to
Unemployment
Types of unemployment (Review)
Disequilibrium unemployment
Demand
Demand--deficient or cyclical unemployment
Related to the cyclical downturns in the economy.
Equilibrium unemployment
Natural unemployment
Unemployed people even under labour market equilibrium.
Frictional unemployment
Short term unemployment, in-
in-between jobs
Seasonal unemployment
Demand for certain labour varies on a seasonal basis.
Structural unemployment
Colegio San Jorge Chacras
Permanent fall in demand for a particular type of labour.
Economics 2017 5 Year
Pablo J. Torrecilla
Solutions to real-
real-wage unemployment
Frictional unemployment
Lower or shorter-
shorter-spanned unemployment benefits can
encourage unemployed workers to take up new jobs quicker.
Improving the information flow from potential employers to
people looking for jobs to minimize inter-
inter-jobs lapses.
Seasonal unemployment
Encouraging or facilitating off-
off-season jobs.
Also, as above, lowering unemployment benefits and
facilitating the information flow can help shortening the
unemployment periods.
Colegio San Jorge Chacras
Economics 2017 5 Year
Pablo J. Torrecilla
Equilibrium unemployment: Structural unemployment
Structural unemployment
Permanent fall in demand for a particular type of labour.
Occurs as a result of change in the structure of an economy.
Enduring: tends to result in the long-
long-term unemployment of
those affected.
Causes
Technological change: obsolescence of certain types of labour.
Displacement by low-
low-cost competing foreign labour.
Changes in consumption habits.
Interventionist Policies
Basic goal: Enhancing of working mobility.
Education: training for occupational flexibility.
Retraining and apprenticeship programs.
Subsidizing of firms that provide training and retraining
programs.
Subsidizing people moving to work-
work-demanding regions.
Disadvantages
Opportunity cost of government spending.
Time frame: Effective only in the long-
long-term. Colegio San Jorge Chacras
Economics 2017 5 Year
Pablo J. Torrecilla
Solutions to Structural unemployment
Market
Market--based: Supply Side Policies
Reduction of unemployment benefits, to encourage the
unemployed to pick up alternative jobs.
Reduction or elimination of labour market regulations would
encourage possible employers to hire new workers (Increase in
labour market flexibility)
Possible undesired consequences
Labour market deregulation tends to worsen working
conditions and contributes to inequity in the economy
(Opposing goals trade-
trade-off: Growth and unemployment vs.
equality in income distribution)
Colegio San Jorge Chacras
Economics 2017 5 Year
Pablo J. Torrecilla
Demand--side or supply side policies to reduce unemployment?
Demand