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Factors Influencing Unemployment Essay

According to economists, employment and unemployment results when the supply and demand for human resources or labour is out of balance. Supply and demand are influenced by a range of forces that are the result of the interaction of economic, structural and policy factors.

Economic Factors

Economic factors affect both the supply and demand sides of labour. Demand for goods and services stimulate production which, in turn, generates employment. The resulting demand for workers affects the supply side as more workers are attracted to a vibrant labour market. The market never reaches this ideal state of balance due to a number of factors.

Business cycles ¾ Agreement among economists is rare, but they do agree that market-driven economies move in cycles and it is during the dips that unemployment may result. The cause of cycles is not as clear, but it is generally agreed that it is a function of supply and demand.

Industrial adjustment ¾ Production may move from high wage countries to low wage countries, from old inefficient facilities to newer ones, and these leave a trail of unemployed workers.

Not enough jobs ¾ Shifts in the world economy affect job availability. Not enough jobs to go around can result from a declining manufacturing sector, a growing service sector, changing consumption patterns, technological developments, or third world competition. Hundreds of thousands of jobs have been lost in manufacturing and goods producing industries in Canada, while at the same time numerous jobs have been created in the technology and service sectors. Unfortunately, the creation of new jobs does not always make up for lost jobs, particularly when jobs overall move to low-wage countries.

Structural factors

Factors such as the aging of the population, labour force participation rates, migration patters, skills available/demanded, environmental regulations, technological change and the rate of job changes all the number of unemployed.

A growing labour supply ¾ Since 1981, Canada’s labour supply has grown more than anytime in its history. Women, persons with disabilities and Native peoples entered the labour force in growing numbers.

Imbalance between skill supply and demand ¾ This results in structural unemployment. People may not be able to take advantage of job opportunities because they lack the skills needed for the jobs available in their area. The matching of skills in demand with those available is a common and persistent cause of unemployment.

Education and training ¾ Companies continually complain that the literacy levels of the work force do not meet the skill needs of the economy. As Canada shifts to a more knowledge-based economy, the availability of jobs for those without high levels of education will shrink.

Movement between jobs ¾ Called frictional unemployment; this phenomenon simply refers to people who switch jobs. While they are between jobs, they are considered unemployed.

Seasonal lay-off ¾ People get laid off in seasonal occupations such as resource industries, construction, tourism and fisheries. Canada is particularly affected by this due to the nature of our economy.

Cost of production and productivity ¾ Low productivity may result from obsolete plant and equipment, high cost of labour per unit, high transportation costs, bad management, and high taxes. The value of the Canadian dollar relative to other currencies, particularly the US dollar, also has a major impact on the business costs and competitiveness.

Technological changes ¾ Increased automation may result in a decreased demand for labour. It can also result in skill redundancy where the original workers do not have the technological skills necessary in the new types of occupations. On the positive side, technological change can result in new products, new markets, or increased productivity.

Internal migration ¾ Rural to urban migration can increase unemployment until the moving people find jobs.

Policy Factors

Government policies continue to be used to affect the economic outcomes such as the rate of inflation, deficit levels, and international trade. This all affects employment levels.

Interest rate and exchange rate policies ¾ High interest rates to combat inflation increase the cost of doing business and increase the cost of financing the government deficits. This may lead to unemployment. The exchange rate policy of keeping the dollar artificially high may make Canadian products less competitive.


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