What are the causes of unemployment?

Unemployment is defined as the people who are able, available and willing to work at the going wage rate but who cannot find work despite an active search for work. Fictional unemployment is one cause of unemployment. It is people who are moving between jobs, these workers may be transferring because they are in an industry that is declining and are moving to an expanding industry. It is normally short-term but will always exist. Structural unemployment is another cause, it occurs when workers lose their jobs in a declining industry and do not have the skills necessary to move into an expanding industry. An example is coal miners wanting to become IT technicians and is caused by changing trade patterns and globalisation. Demand- deficient unemployment occurs when there is a lack of aggregate demand in the economy, meaning the equilibrium is below full employment. Finally, real-wage unemployment occurs when wages are set above equilibrium, causing an excess supply of labour. The possible causes of this are trade union power, the national minimum wage and sticky wages.

Unemployment can be voluntary or involuntary. Each of the unemployment types discussed are forms of involuntary unemployment which mean individuals would like to accept a job at the going wage rate but are unable to find work. Voluntary unemployment is when an individual chooses not to accept a job at the going wage rate. A couple of reasons include generous unemployment benefits, which make accepting a job less attractive and high marginal tax rates, which reduce effective take-home pay.