Structural Unemployment

Caused by a mismatch between workers' skills and the skills needed for available jobs, often due to technological changes or industry decline.

Example: A factory worker loses their job due to automation.

Structural unemployment how to affect to the economy

1. People stay jobless for a long time

- They can't find work easily

because their skills are outdated.

2. The economy produces less

- Fewer people working means fewer goods and services are made.

3. Government spends more

- The government may need to give unemployment benefits or pay for training.

4. Gap between rich and poor grows

- Some people earn a lot, but those without the right skills earn very little or nothing.

5. People’s skills go to waste

- When people don’t work for a long time, they may forget or lose their skills.

6. Businesses may lose confidence

- If it’s hard to find skilled workers, companies may not grow or invest.

7. Social problems increase

- More crime, stress, and unhappiness can happen in areas with high unemployment.

Cyclical unemployment refers to the type of unemployment that occurs due to downturns in the business cycle. It rises during periods of economic recession or slowdown and falls when the economy improves and grows.

How Cyclical Unemployment Affects the Economy:

1. Reduced Income and Spending:

When more people are unemployed, their income drops, leading to reduced consumer spending. This further slows down economic growth.

2. Lower Production and Profits:

With less demand for goods and services, businesses cut back on production, which can lead to more layoffs and lower profits.

3. Government Burden:

The government has to spend more on unemployment benefits and other welfare programs, while tax revenues fall due to lower income and business activity.

4. Increased Social Problems:

Long-term cyclical unemployment can lead to poverty, mental health issues, and other social challenges

5. Loss of Worker Skills:

Prolonged periods of unemployment can cause workers to lose their job skills or fall behind in industry trends, making it harder for them to find new employment even when the economy recovers.

6. Decreased Consumer Confidence:

When unemployment is high, people tend to worry more about job security, even if they’re currently employed. This fear leads to less consumer spending, further reducing demand in the economy.

7. Impact on Investment:

Businesses facing lower profits and uncertainty about future demand are less likely to invest in new projects or expansion, which delays economic recovery and job creation.

8. Lower Tax Revenue and Increased Budget Deficits:

With more people out of work, governments collect less income tax and business tax, but need to spend more on welfare and stimulus programs, increasing national debt.

Frictional unemployment is a type of short-term unemployment that occurs when workers look for new employment or transition out of old jobs and into new ones. This temporary period of unemployment is the result of voluntary transitions within an economy.

🔴Reason for Frictional Unemployment

🔸Job transitions: Individuals leaving current jobs to find better pay, working conditions, or career growth.

New entrants to the

🔸workforce: Recent graduates or those entering the job market for the first time.

🔸Re-entrants to the workforce: Workers returning after a period of absence, such as from family care or education.

🔸jobs: Workers seeking better opportunities or a more fulfilling career path.

🔸Information gaps: Job seekers unaware of available opportunities or the skills required for specific roles.

🔸Temporary work: Individuals employed in seasonal or short-term positions.

🔴Advantages of Frictional Unemployment

1.Frictional unemployment always exists in an economy with a free-moving labor force.

2.It also helps businesses because it gives them a wider selection of potentially highly qualified candidates applying for positions.

🔴Disadvantages of Frictional Unemployment

1.When frictional unemployment is high, employers may find it difficult to retain talent.

2.Frictional unemployment often means workers may be comparing different offers, waiting for strong opportunities, and requiring investment from their company to be retained.

Types of unemployment

• Frictional unemployment

• Cyclical unemployment

• Seasonal unemployment

• strucstructural unemployment

  Caused by mismatches between workers' skills and job requirements.

  E.g. Due to technological changes.

  
  

Structural unemployment is a type of unemployment that occurs when there is a long-term mismatch between the skills of workers and the skills needed for available jobs, or when technological changes and other structural shifts in the economy make certain jobs obsolete.

Key points:

• Caused by changes in the structure of the economy (e.g., automation, outsourcing, industry decline).

• Workers may need retraining or relocation to find new employment.

• It is not related to short-term economic fluctuations (like cyclical unemployment).

Example:

If a factory automates its production line and no longer needs manual labor, the workers who previously held those jobs may become structurally unemployed unless they acquire new skills for different jobs.

Frictional unemproyment reflects - temporary state of being unemployed while transitioning between jobs or entering job market in their first time .

Examples for frictional unemployment

• A recent college graduate actively searching for a job

• Someone who look for a higher - paying job

• A seasonal worker who is not working during off - season

• A worker move another city to search for a job

Negative impact to economic growth

Reduce GDP in country - in this situation some people are not work, directly affect to reduce overall output in economy

Insufficient resource allocation - production resources are in economy exactly labour source are not being fully utilized

Increases unemployment rate in economy

There some positive facts we can have under this frictional unemployment

*Talent matching - allows individuals to find better work with their skills

*innovation - worker can have new perspectives and ideas to new businesses

*efficiency - workers seeing better working opportunities they are motivated to iimprove skills then increases efficiency

Current frictional unemployment rate in srilanka - 4.2%