Types and causes of unemployment Cyclical unemployment occurs when an economy goes into recession and overall demand for goods and services declines. This means fewer workers are needed to produce goods and services and some will be made redundant. Those who are unemployed then have lower incomes and spend less, which reduces demand in the economy further. This is a major cause of unemployment. Technological unemployment occurs when machines replace workers in certain jobs. For example, in the car industry robots have replaced workers along the assembly line, causing unemployment. This cause of unemployment is becoming more common. Structural unemployment occurs when an entire business or industry goes into long-term decline because of falling demand. This can happen to industries that are experiencing strong competition from lower cost imports or simply changing consumer tastes. For example, Ireland once had large industries producing clothing and footwear. These went into decline as customers switched to cheaper imports from lower cost countries. Similarly, the demand for printed newspapers is in long-term decline as people switch to digital and other media for their news. Seasonal unemployment is caused by some jobs not being in demand at various times of the year. Tourism is a very seasonal business with tourism jobs in Ireland peaking during the summer and declining during the winter. Voluntary unemployment occurs where people do not want to work. It can sometimes happen that money earned from some low skilled jobs may not be any more than people could get on social welfare. In such circumstances, some people may choose to stay unemployed. Frictional unemployment is temporary and occurs due to workers moving between jobs. There is sometimes a time lag between people leaving one job and starting a new one. This is sometimes called ‘search unemployment’.
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Dangers of high unemployment Government income will fall and expenditure will rise. When people are unemployed they pay less money in tax which reduces the government’s income. They also receive social welfare benefi ts from the government, which increases government expenditure. This can lead to government defi cits. Reduced economic growth as unemployment increases and the demand for goods and services decreases. This discourages businesses from producing more goods and services, which can cause economic growth to fall. This can cause even more unemployment. Increased social issues as high unemployment is associated with poorer health and poverty.
