Economics – Frictional and Structural Unemployment Essay
Economics – Frictional and Structural Unemployment
This assignment mainly compares and contrasts the two broad categories of unemployment which are Structural and Frictional unemployment. The type of unemployment which has a greater impact on economy will also be identified and the reasons for this phenomenon will also be discussed. Frictional Unemployment The short term unemployment in an economy refers to frictional unemployment which is present due to normal market adjustments.
The factors contributing to the hindrances of employment in frictional unemployment are business adjustments, imperfections of market information that are imperfect or the individual’s preferences for employment are much higher than available. Those people are frictionally unemployed who do not have jobs in the market with wages of current market level; these jobs are within reasonable reach and are suited to their skills (Gilpatrick, 1966). However, this type of unemployment is not long-term.
Frictional unemployment can be removed without any increase in aggregate demand and in a short period of time. There are jobs available for those who are unemployed, under this type of unemployment, but the workers are not aware of other opportunities, they require time to readjust to business changes or they choose to wait for other job opportunities. The assumptions of frictional unemployment are that labor productivity, state of technology and the skills of labor force remain constant in the short term (Gilpatrick, 1966).
Structural Unemployment Structural unemployment occurs because of the structural changes in the economy or the business processes of the related businesses. This type of unemployment is encountered in the long run and sometimes could arise without any changes in the demand. The composition of final demand, technological advancements and shifts in the locations of industries are the main structural shifts that affect the labor and skill requirement. If the labor force is capable of adapting to the new environment, there will be no problems.
Those who are not able to adapt, they get unemployed because either their skills are no longer required in the industry or their skills are non-transferable to other occupations (Gilpatrick, 1966). The basic changes responsible for structural unemployment are in final demand of product mix and in technology. However, when there is exhaustion of resources locally, the industries can move out to other geographical regions which cause structural unemployment. When there is a change in technology, no increase in skills of the labor will provide employment for those who were displaced.
Those who do not have the skills required to get employed are said to be structurally unemployed (Gilpatrick, 1966). Differences between the Two Types of Unemployment The key difference in the two type of unemployment is that in the structural unemployment, the unemployment is caused by the mismatch of specific labor skills supply and demand, whereas in frictional unemployment, there is no such mismatch. Another key difference is that the structural unemployment is long term whereas the frictional unemployment takes only a short period to get eliminated, given other things constant.
Impact on Economy Structural unemployment has a higher impact on the economy as this type of unemployment can trigger a higher level of inflation when the demand of the products gets higher. The structural unemployment can get the industries disappear from the economy which are no longer require or if the labor does not have the skills required. This is a long term unemployment which also increases the impact as the unemployed labor does not contribute to the economy.
Frictional unemployment on the other hand is a short term phenomenon which is eliminated in a short period of time. This is not as bad for the economy as the skills required in the industry are present with the workers and they will find their desired work shortly. References Gilpatrick, E. (1966). ON THE CLASSIFICATION OF UNEMPLOYMENT: A VIEW OF THE STRUCTURAL-INADEQUATE DEMAND DEBATE. Industrial & Labor Relations Review, 19(2), 201-212. Retrieved from Business Source Complete database.