Structural and equilibrium unemployment

[ChocolateDrop]

Hey guys, Im doing some economics exam prep and Ive come across some unemployment questions.

Due to my economics teacher being extremely ill, Ive basically had to teach myself a huge chunk of the macroeconomic section. However I cant seem to understand unemployment enough to make a decent economics reply to any of the questions. I came across this question: 'Discuss policies that a government might use to reduce levels of structural and equilibrium unemployment?' Once again I'm stumped. Besides the definitions I do not know where to begin.

My understanding of Structural unemployment - due to advancing technology/ skills needed and lack of demand for certain skills. Eg atms replacing human bank tellers

eg mining less demand for mining in England = less jobs for miners

My understanding of equilibrium - equilibrium demand and supply of labor?

Help please!

[Ezak]

Ok, let's begin with the structural unemployment.

The reason people get stuck in structural unemployment is that they have been trained in skills that are no longer needed. To be able to be employed they have to acquire the skills needed of the market (at that point of time). This is done by re- educating them. So Educating the workforce and helping them to acquire skills for different trades in demand will get rid of structural unemployment. Also such things as subsidising firms to hire workers that are old and can't get new skills that easily will have the same effect.

Equilibrium unemployment stems from people who either don't have the skills to work, don't feel like it because of the low equilibrium wage or both. Thus, lowering unemployment benefits and the like will get people to work for a lower wage, as it is either that or a lower standard of living. You could also reduce the power of the labour unions to get the same effect.

Hope that clarified some stuff!

Edited October 22, 2012 by Ezak

[fяαи]

What Ezak said is absolutely correct.

Regarding Structural unemployment, you could begin by drawing a demand and supply diagram of what happens when structural unemployment occurs. It's good to know what the diagrams look like so if ever a question comes in the exam and you need to draw, you'll have a better understanding of the whole thing also and the examiner will be able to tell that you understand the concept. The government could educate the workers or subsidize the firms to help them hire the workers and train them too. Don't forget to mention drawbacks to this as it is good to talk about advantages and disadvantages. For example, if the government is to subsidize the firms or train the workers themselves then the government is creating an opportunity cost as that money could be used elsewhere and for other important purposes. Again, don't forget to draw a diagram to show what happens to the market of such workers once they're trained.

Again, with the use of Ezak's information, you should point out the advantages and disadvantages of such things on the employment market. Diagrams and such will do too. You could point out the that government could lower unemployment benefits given to those people who don't have jobs thus forcing them to look for jobs. You could point out that governments could create agencies for the unemployed to use to be more informed of any jobs that may be available.

Hope I helped.