Question Tag: Unemployment

i) Cyclical vs. Structural Unemployment:

• Cyclical Unemployment:
  Cyclical unemployment is caused by short-term economic fluctuations. When a country’s GDP slows down, there is a negative effect on the economy, which may cause businesses to make employees redundant until GDP begins to grow again.
  (2.5 marks)
• Structural Unemployment:
  Structural unemployment occurs when the skills possessed by workers are not demanded by employers. It may also occur when technological inventions make many employees redundant because they do not have the immediate skills employers require to work in the new technological environment.
  (2.5 marks)

ii) Costs Associated with Cyclical or Structural Unemployment:

1. Reduction in Government Revenue:
   Unemployment, whether cyclical or structural, reduces the revenue the government receives from taxes on workers’ income. As people are not earning any income, the government cannot collect income taxes from them.
   (2 marks)
2. Declining GDP:
   Unemployment affects a country’s gross domestic product (GDP) negatively. When the country fails to create jobs for those willing and able to work, the general production of goods and services declines, leading to a reduction in GDP.
   (2 marks)
3. Reduction in Standard of Living:
   Unemployment reduces the standard of living for people within a country. Without jobs, people may limit their expenditures to basic necessities, foregoing luxury products that provide comfort and quality of life.
   (2 marks)
4. Rise in Crime:
   High levels of unemployment increase the level of criminal activities in a country. Jobless individuals may resort to illegal activities, such as theft, to earn money for their survival.
   (2 marks)
5. Rise in Poverty:
   Widespread joblessness increases the level of poverty in a country. As people are not earning income and may not have savings, they are unable to provide for their basic needs, leading to increased poverty.
   (2 marks)