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PART A: THE BUSINESS ORGANISATION, ITS STAKEHOLDERS AND THE EXTERNAL ENVIRONMENT 
 
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6.3 Causes of unemployment 
Unemployment may be classified into several categories depending on the underlying causes. 
Category 
Comments 
Real wage 
unemployment
This type of unemployment is caused when the supply of labour exceeds the demand 
for labour, but real wages do not fall for the labour market to clear. This type of 
unemployment is normally caused by strong trade unions which resist a fall in their 
wages. Another cause of this type of unemployment is the minimum wage rate, when 
it is set above the market clearing level. 
Frictional
It is inevitable that some unemployment is caused not so much because there are not 
enough jobs to go round, but because of the 
friction
 
in the labour market (difficulty in 
matching quickly workers with jobs), caused perhaps by a lack of knowledge about 
job opportunities. In general, it takes time to match prospective employees with 
employers, and individuals will be unemployed during the search period for a new 
job. Frictional unemployment is temporary, lasting for the period of transition from 
one job to the next. 
Seasonal
This occurs in certain industries, for example building, tourism and farming, where 
the demand for labour fluctuates in seasonal patterns throughout the year. 
Structural
This occurs where long-term changes occur in the conditions of an industry. A feature 
of structural unemployment is high regional unemployment in the location of the 
industry affected. The primary cause is a significant reduction in the level of demand. 
Technological
This is a form of structural unemployment, which occurs when new technologies are 
introduced. 
(a) Old skills are no longer required. 
(b) There is likely to be a labour saving aspect, with machines doing the job that 
people used to do. 
With automation, employment levels in an industry can fall sharply, even when the 
industry's total output is increasing.