MAIN CAUSES OF

UNEMPLOYMENT

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accounting Systems
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 1 Technological Change
 Technological Change – workers
replaced by machines. In the short
run unemployment may rise as a
result of new technology.
 In the long run new industries and
new job opportunities are created by
technological change.

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 1 Technological Change
 Technological change increases
productivity the increased output
from inputs, releases factors of
production for other areas of the
economy leading to growth in other
industries.

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2 Reduction in Aggregate
Demand
A fall in Consumption,
Investment, Government
Spending or net Exports will
reduce total expenditure,
causing output to be reduced
and thus an increase in
cyclical unemployment.

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 3 Cost Push Inflation /
Rising Labour Costs
 Wage rises in excess of productivity
growth has lead to labour being
substituted for increased capital.
This type of unemployment is termed
structural unemployment.

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 4 Government Policies
 Thegovernment has utilised tight
monetary and fiscal policies, thus
reducing income in the economy and
causing a negative multiplier.

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 4 Government Policies
 Since Output = Income = Expenditure,
a reduction in income has lead to
less disposable income and thus
expenditure, the subsequent
surplus output, has lead to
producers ‘laying off’ unrequired
workers = cyclical unemployment.

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4 Government Policies
 Reducing tariffs and
other forms of
protection, forces
Australian industries
to strive for
economies of scale
which can cause
structural
unemployment in
the short term.
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 5 Level of World Economic
Activity
 Ifworld economic growth slows,
demand for Australian exports
decreases.
 Hence export industries produce less
or produce a surplus, thus the
demand for labour decreases.

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 5 Level of World Economic
Activity
 Thereduction in employment and
income within the export industry
has a magnified effect on
employment within the domestic
economy.

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 5 Level of World Economic
Activity
 Asincome for those employed in the
export industry decreases, so does
Aggregate demand, thus there is a
reduction in required output causing
cyclical unemployment to increase.

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accounting Systems
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