Causes of unemployment

All countries suffer unemployment but most developing countries experience it at relatively higher degree and the following can be some of the types and causes:

i) Transitional unemployment:- Transitional unemployment is that situation which prevails due to some temporary reasons. The main reasons for this type of unemployment are:

  • Turnover unemployment: Some individuals leave their present jobs and make efforts to secure better ones and in this way they remain unemployed for sometime.
  • Casual unemployment: Casual workers are employed for a specific job and when the job is completed such workers become eventually unemployed eg. shipping and building construction workers.
  • Seasonal unemployment: some industries for instance have seasonal demand and their products are manufactured for a specific period of time ( a specific period of the year). The workers of such industries remain unemployed for that time eg. ice factories may remain closed during winter.


ii) Structural Unemployment: caused by structural changes such that there exist:

  • Cyclical unemployment: During depression, prices are too low and profit margins remain distinctively low. In this case, investment decreases and unemployment increases.
  • Technological Unemployment (due to inappropriate technology): Technology is not inappropriate per se but in relation to the environment in which it is applied. In most developing countries, most of their (current) production structures tend to be labour saving (capital – Intensive), which is not appropriate since these countries experience high labour supply. Capital-labour ratios tend to be high implying that less labour is absorbed compared to capital in production ventures, thereby causing unemployment.
  • Industrial change: the establishment (entry) of new industries decreases the demand for the products of existing industries eg. the rapid increase in the demand for Japanese industrial products is one reason for greater unemployment in some European countries.
  • Keynesian Unemployment: According to Keynesian theory of income and employment, unemployment occurs due to lack of effective demand. If effective demand is less, production of goods and services will fall, which will further result in the unemployment of labour. Another feature of Keynesian unemployment is that unemployment of labour is associated with unemployed capital such as plant and machinery which tend to be idle during depression.
  • Urban unemployment: Due to availability of more facilities in urban areas, more and more people tend to move to these areas. The employment opportunities available are not sufficient to absorb all those people settled in the urban areas. This kind of unemployment is therefore due to rural-urban migration.
  • Disguised unemployment: a situation where some people are employed apparently, but the total production (output) would still remain the same even if such people are withdrawn from the present jobs. In most developing countries, this type of unemployment is estimated at 20 to 30% (especially in the public sector) and measures
    should be taken to employ such people in other sectors of the economy to enhance productivity.

iii) Insufficient capital: Shortage of capital is a hindrance to the establishment of more industries and other productive investment and in this regard more employment opportunities are not created.
iv) Nature of education system: Education systems for most developing countries are white – collar oriented yet the nature of productive capacities of their economies are not sufficiently supportive. Moreover, inadequate education and training facilities render most people unable to secure those job opportunities that require high skills and specialized training.
v) Rapidly increasing population: The population growth rate far exceeds the amount of job opportunities that an economy can generate. Thus in summary, some of the causes of unemployment can be said to include:

  • Rapidly increasing population
  • Inappropriate technology
  • Insufficient capital base
  • Demand deficiency/structural changes
  • Presence of expatriates
  • Education systems – white – collar orientation
  • Rural-Urban migration
  • One person for more than one job
  • Corruption and general mismanagement
  • Inadequate knowledge on market opportunities.

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