Cambridge International as and a level Economics Ebook

Structural unemployment: 
unemployment caused as a 
result of the changing structure of economic activity.
KEY TERMS
When declining industries are concentrated in a particular 
area of the country, the resulting unemployment is 
sometimes referred to as regional unemployment.
Another form of structural unemployment is 
international unemployment. Th
is is when workers 
lose their jobs because demand switches from domestic 
industries to more competitive foreign industries. For 
instance, the number of coal miners in the UK has fallen 
signifi cantly over the past 40 years as the UK has lost its 
comparative advantage in coal mining.
Frictional and structural unemployment arise largely 
due to problems on the supply side of the economy. 
Th
e third main type of unemployment, cyclical 
unemployment or demand-defi cient unemployment, 
arises due to a lack of aggregate demand. 
Cyclical 
unemployment
will aff ect the whole economy, with job 
losses occurring across a range of industries.
 Figure 9.12 
shows the labour market initially in equilibrium at a 
wage rate of 
W
. Th
en as a result of a fall in aggregate 
demand, fi rms reduce the output and aggregate demand 
for labour shift s to 
ADL
1
. If workers resist wage cuts, 
demand-defi cient unemployment 
XQ
will exist.
Even if wage rates fall, this type of unemployment 
may persist. Th
is is because a cut in wages would 
reduce demand for goods and services as people would 
have less money to spend, which would cause fi rms 
to reduce both their output further and make more 
workers redundant.
TOP TIP
In explaining the diff erent types of structural 
unemployment it is useful to give examples based on 
your own country.