C) The causes of unemployment: o structural unemployment o occupational…

The idea

Unemployment arises from distinct causes requiring different policy responses. Structural unemployment occurs when an industry declines, leaving workers with skills that no longer match available jobs. This links to occupational immobility, where workers cannot easily retrain, and geographical immobility, where high housing costs prevent relocation to areas with vacancies. Technological unemployment is a structural issue where automation replaces human labour, such as self-checkouts replacing cashiers. Conversely, cyclical unemployment, or demand deficiency, happens during an economic downturn. When aggregate demand falls, firms across multiple sectors lay off workers to reduce costs, as seen during a recession.

What earns the marks

• Identify structural unemployment as a mismatch of skills due to long-term industrial decline.
• Explain occupational immobility as the inability of workers to transfer their skills to new industries.
• Explain geographical immobility as physical or financial barriers preventing workers from moving to locations with job vacancies.
• Define technological unemployment as job losses resulting from capital replacing human labour.
• Link cyclical unemployment to a deficiency in aggregate demand during the negative output gap of a business cycle.

Common mistakes and how to put them right

• Confusing structural and cyclical unemployment.

  Put it right: Structural is a long-term skill mismatch, whereas cyclical is caused by a temporary fall in aggregate demand.

• Assuming technological unemployment only affects manufacturing.

  Put it right: Technological unemployment also impacts service sectors, such as artificial intelligence replacing administrative roles.

• Treating occupational and geographical immobility as the same concept.

  Put it right: Occupational relates to a lack of transferable skills, while geographical relates to physical relocation barriers like housing costs.

Exam tips

• Always link cyclical unemployment explicitly to a fall in aggregate demand or a recessionary phase of the economic cycle.
• Use specific examples, such as the decline of traditional manufacturing, to illustrate structural unemployment and occupational immobility.
• When evaluating policies to reduce unemployment, ensure the proposed policy matches the specific cause, such as retraining grants for occupational immobility.