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Unemployment

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Title: Write an essay which uses a variety of sources to analyse the main causes of unemployment. Identify strategies that governments can use to reduce each of these causes. Assess which of these strategies might be most useful in reducing unemployment.

Governments often regard reducing unemployment as one of the main economic objectives. Unemployment is the existence that there is labour force able and willing to work but is unable to be employed (Bannock, Baxter, 2011). It tends to follow a cyclical pattern. In the early 1990s, the unemployment began to rise as economies around the world went into recession. On the other hand, in the mid-1990s, unemployment fell as the world was in the period of expansion. The UK is now in a very low level of unemployment. The causes of unemployment can be categorized into equilibrium unemployment and disequilibrium unemployment. It can be classical, cyclical, frictional and structural. This essay will first describe the main causes of unemployment. Then, it will survey the possible policies that can be adopted by the government to reduce these causes. Finally, it will evaluate the most useful policy.

Disequilibrium unemployment is the condition that the supply of labour exceeds the demand of labour and the wages remain relatively unchanged (Gillespie, 2011). Classical (real wage) unemployment and cyclical (demand-deficient) unemployment are two possible causes of disequilibrium unemployment. Classical or real wage unemployment will happen when the real wage is high above the equilibrium (Begg, 2009). Because of the high real wages, more people are willing to work than are demanded. Gillespie (2011: 439) states that this occurs when trade unions push the wages above the equilibrium rate. He (2011:439) adds that if employees continue to demand high wages even when prices are declining, the real wages will be higher too. In

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