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Economic Growth, Unemployment and Inflation: Question 1

Syllabus 4.5

Multiple choice AS 1 mark

A country's Ministry of Labour is reviewing the cases of four workers who have recently become unemployed, in order to decide which policy might best help each of them find work again.

Which of these workers is unemployed for structural reasons?

Choose an answer to check it, then compare with the worked solution below.
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Worked solution

Step 1: Recall the types of unemployment

Frictional unemployment is short-term unemployment between jobs, while a worker searches for or waits to start a new post. Seasonal unemployment is a predictable, recurring pattern caused by the time of year (demand for certain labour rises and falls with the seasons). Cyclical (demand-deficient) unemployment is caused by a fall in aggregate demand across the whole economy during a downturn. Structural unemployment occurs when the pattern of demand for labour changes permanently, for example because a whole industry declines or relocates, leaving workers whose skills or location no longer match the jobs that are actually available, so that retraining or relocation is needed before they can find work again.

Step 2: Check option C against this definition

Chen’s coal mine has closed permanently, not temporarily, because of a lasting shift in national energy policy away from coal. His loading skills are specific to a declining industry and are not wanted by any other local employer, so he cannot simply find a similar job nearby. He needs retraining for a different occupation. This is exactly structural unemployment: a lasting mismatch between his existing skills and the jobs actually available, caused by a permanent change in the structure of the economy.

Step 3: Rule out options A, B and D

  • Option A (Amara): her unemployment is brief and simply reflects the normal time it takes to search for and choose between job offers. This is frictional unemployment, not structural.
  • Option B (Boris): his job loss recurs predictably every winter and is tied to the seasonal tourist calendar, not to a lasting mismatch of skills. This is seasonal unemployment.
  • Option D (Dara): her redundancy, shared with thousands of other workers nationwide, is caused by an economy-wide fall in aggregate demand during a recession. This is cyclical (demand-deficient) unemployment, since it would be expected to reverse once aggregate demand recovers, rather than reflecting a permanent change in which skills are needed.

Final answer

Option C. Chen’s unemployment is structural: the permanent closure of his entire industry locally, combined with a lasting mismatch between his skills and the jobs actually on offer, is the defining feature of structural unemployment, unlike the frictional, seasonal and cyclical unemployment described in A, B and D.