Explain two causes of structural unemployment.

Discuss the consequences of different types of unemployment.

Marks should be allocated according to the paper 1 markbands for May 2013 forward, part A.

Answers may include:

• definition of unemployment, structural unemployment
• diagram(s) that show the demand curve for labour shifting to the left and/or surplus of labour due to minimum wage legislation/labour unions
• explanation that a (permanent) decrease in demand for particular labour skills, changes in the geographical location of industries and labour market rigidities, would lead to a surplus of workers (and therefore unemployment)
• examples of industries that have experienced structural unemployment due to relevant causes (e.g. coal miners losing their job due to foreign competition or the advent of alternative sources of energy, workers in the newspaper and retailing businesses losing their jobs due to online competition and new technologies, low-skilled workers remaining unemployed due to minimum wage legislation, etc.).

Examiners should be aware that candidates may take a different approach which, if appropriate, should be rewarded.

Marks should be allocated according to the paper 1 markbands for May 2013 forward, part B.

Answers may include:

• definitions of unemployment, frictional unemployment, structural unemployment, seasonal unemployment, cyclical unemployment
• diagram(s) showing decreasing GDP due to falling AD or LRAS
• explanation of the economic consequences of different types of unemployment in terms of effects on government budget, personal incomes and real GDP, and personal or social consequences such as increased inequality in the distribution of income, the possibility of increased crime rates, increased stress levels, increased indebtedness, homelessness and family breakdown
• examples of specific cases where unemployment has led to economic, personal and social consequences (e.g. geographical areas with declining industries, the Great Depression)
• synthesis or evaluation (discuss).

Discussion may include: comparison of the extent of the negative consequences for the government budget, personal incomes and the real GDP of the different types of unemployment; comparison of the extent of the negative personal and social consequences of the different types of unemployment for individuals who have lost their jobs; consideration that unemployment is part of the adjustment process of a dynamic economy; consideration of the desirability of some types of unemployment (e.g. frictional) in comparison to others (e.g. cyclical); consideration of the duration of different types of unemployment from the point of view of individuals and the economy as a whole.

NB It should be noted that definitions, diagrams, theory and examples that have already been given in part (a), and then referred to in part (b), should be rewarded.

Examiners should be aware that candidates may take a different approach which, if appropriate, should be rewarded.

Even though many candidates could not precisely define structural unemployment, most of them were able to demonstrate good understanding by the use of appropriate examples. 

Some less-prepared students had difficulties distinguishing between the different types of unemployment as well as distinguishing between the causes of unemployment and the consequences of unemployment.