unemployment
...ructural unemployment. Frictional unemployment is when someone has recently become unemployed and has to find a new job and it takes time. To reduce frictional unemployment governments should introduce measures, which reduce time spent searching for unemployment. Introducing job centres like in the UK can do this. Demand deficient unemployment is where there isn’t enough demand in the economy and therefore a lack of jobs. Aggregate demand is the sum of consumption, investment, government spending and net exports (exports – Imports). Governments can deal with this type of unemployment by stimulating any one of the components of aggregate demand therefore moving the economy to its long run equilibrium and creating jobs. This is called demand management, which is the “use of fiscal and monetary policies to influence the level of aggregate demand.” * Fiscal policy is the use of the tax system. So in order to increase aggregate demand governments will have to tax less and spend more. Monetary policy is the use interest rates to indirectly change the market structure. Keynesians tend to favour fiscal policy because in a recession monetary policy has little power to increase firm’s expectations of profitability. Structural unemployment happens when there are changes in the structure of the economy, i.e. shifts in supply or demand. Labour is not perfectly mobile so somebody who is unemployed in Liverpool would find it difficult to take a job in London. Alternatively a trained bricklayer could not take a job as a teacher because they haven’t got the training. Governments can deal with this type of unemployment using regional policy or training schemes. The monetarist approach comes from the work of Milton Friedman. Friedman used the term the natural rate of unemployment; this is the rate of unemployment that exists when the economy is at its long run equilibrium. Friedman believes that most unemployment is therefore that most unemployment is structural or frictional and would say that the governments of the G5 should use measures to increase incentives in the labour market, increase wage flexibility, increase the mobility of labour (both geographical and occupational) and increase the efficiency of markets for goods and services. The new classical approach states that the labour market continually clears, meaning that anyone who wants a job at the going wage rate can get one. In this approach is treated as entirely voluntary. This means that anyone who is out of work is choosing not to work. Unemployme...