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What are the causes and effects of unemployment?

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Quick Answer

There are a number of causes of unemployment, but many economists put most unemployment in three different categories: frictional, cyclical, and structural unemployment. A number of unemployment reasons fall into these categories. The effects of unemployment can be both personal and national.

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Full Answer

Frictional unemployment is a natural form of unemployment experienced when workers are between jobs. After losing a job, a person is considered unemployed until he finds another.

Structural unemployment is caused by changes in industry. If new technology makes a job unnecessary, or a demand for workers in a field goes down, then workers in that field will lose their jobs. Another form of this is outsourcing, in which companies move jobs elsewhere to a place where labor costs are lower.

Cyclical unemployment is caused by natural changes in the economy. If the economy is growing, more workers are needed. If it shrinks, then workers lose their jobs. During recessions, unemployment rates tend to grow.

The effects of unemployment are wide-ranging and include high costs to the government, a reduction in spending power for consumers and economic recession. The government takes on higher costs since it has to provide security to the unemployed, so when fewer people have jobs, the government has to pay more to support them. The spending power of both the unemployed and those still working goes down, since those without jobs can't pay for goods while those who are employed face increased taxes and economic uncertainty. The combination of reduced work forces and reduced spending can lead to recession.

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