Causes and Effects of Unemployment and Examination of Government Essay

Causes and Effects of Unemployment and Examination of Government Policies to Reduce It - Essay Example There are four major categories of Unemployment: Cyclical, Classical, Frictional and Structural (Politics.Co.Uk, 2011). Each of these categories of unemployment has different roots. Cyclical unemployment is mainly linked to variations in the business cycles. It often takes place when the economy is passing through a recession. In such a phase, the demand for goods and services decreases in the economy, which results in firms cutting down on output and laying off workers. This is considered to be the chief cause of Unemployment. The 2007-08 global recession resulted in soaring cyclical unemployment in the United Kingdom with the unemployment figures going past 2.5 million in May 2010, the highest for almost two decades (Kornacki, 2011). The second important category of Unemployment is Classical unemployment. It is also known as Real Wage Unemployment. It takes place when an attempt is made to synthetically keep the wages above the equilibrium formed between the supply and demand curve s. For instance, economic institutions such as a strong trade union may influence the movement of wages beyond the equilibrium resulting in surplus labour supply and thereby causing Classical Unemployment. Frictional Unemployment is the third category of Unemployment. This type of unemployment is related to people being in between jobs. It is considered to be the time phase between jobs or when a worker is switching from one job to another. It is believed to be an everlasting phenomenon in the economy as there are always employers finding workers and workers searching jobs. Mismatch between workers and employers often occur in the economy due to disparity of interests between them with regard to factors such as payment, location, mind-set, etc. The last major category of Unemployment is the Structural Unemployment. It is usually caused due to mismatch of skills and location. For instance, there may be jobs available which require certain type of skills; however, if the workers do no t possess the appropriate skills, then this results in unemployment. Structural Unemployment in the coal mining industry of the United Kingdom rose sharply in the early 1980’s as new technology in the form of Nuclear energy came into the picture. In the case of a mismatch of location, jobs may exist in some other part of the country but workers might not be able to move there due to personal or other reasons (Himmelweit et al, 2001). There are benefits as well as costs of unemployment. The prime benefit associated with this phenomenon is that it keeps the inflation down, which too has severe effects on the economy. The other benefits in the view of the employers are that workers are available to employ; and they would work hard as well, due to the fear of getting unemployed. There are mainly two types of costs of unemployment, individual and social. With regard to the individual, unemployment paralyzes the individual’s ability to tackle financial requirements related t o oneself or one’s family, resulting in stress and diseases which can lead to severe depression as well. Socially, higher unemployment means lack of utilization of economic resources, particularly labour. Moreover, unemployment also leads to social evils such as