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Causes of Unemployment in an Economy


Unemployment is a state of being unemployed despite one’s ability and willingness to work, yet one cannot find any income-generating activity to earn capital. Unemployment is a key indicator of the health of an economy. The government collects unemployment data in different ways, yet many governments may offer unemployed individuals some money through unemployment insurance as long as they meet some requirements. In some countries, the unemployment rate has increased because people can be selective when it comes to the jobs available in the market. There are four types of unemployment: institutional unemployment, structural unemployment, cyclical unemployment, and frictional unemployment. In an economy, causes of unemployment can be occupational immobilities, technological change, geographical immobilities, and structural change in the economy.

According to Dankert (1941), Occupational immobility is one of the causes of an economy, which refers to the difficulty in learning skills applicable to a new job. However, the skills required for the jobs available in the market differ from one new skill. For instance, an unemployed driver may struggle to find work in a Cement Manufacturing Factory, yes the gap for him or her is available in the factory so he or she can work, but his or her skills are not suitable for him or her to work in the Cement Manufacturing Factory. The government should develop a strategy to educate people and give them skills for the jobs available in the market. By doing so, everyone will be in a position to work, and the level of unemployment will decrease. Failure to do this will increase unemployment because as days go by, people in an economy will not be in any income-generating activity.

According to Rip & Kemp (1998), technological change is one of the causes of unemployment, and this is due to the inventory of machines that is used to work in industries instead of the people doing the same job that machines do. Some machines like computers may fasten work, store information and are more accurate than people. Hence, in some industries, they use computers to do such jobs. People with the ability and willingness to do such jobs will be jobless because computers are doing the work they are supposed to do, which increases unemployment. Employees in industries and other places of work are supposed to eliminate machines and employ people in the industry’s gaps other than buying machines and making them work. Failure to do that, people in the economy will continue being jobless, and this will make the level of unemployment increase. Governments are also supposed to establish some industries and employ peoples that are jobless so that they can minimize the level of unemployment in an economy.

Geographical immobility occurs when there are costs facing people who need to move to find new work. This problem affects families and makes the family earn a low income, and this is due to housing costs to buy and also to rent ( Dankert, 1941). For instance, if you sold a house for Ksh 120 000, y could not afford to buy another in America because of the higher house prices. Therefore, the cost of buying or renting may hinder a worker willing to work for other countries from moving to areas with higher demand for the worker. The government should ensure that the country has enough resources that the citizens can utilize or has available jobs so that the citizens will not travel from one country to another. This will minimize the level of unemployment in a country.

Structural change is an industry or market function shift, usually brought by major economic developments. For instance, the shift from agriculture to manufacturing to services may facilitate structural change, thus increasing the level of unemployment in an economy (Uy et al., 2013). Four factors may contribute to structural change: intersectoral wedges, nonhomothetic tastes, sector-biased technological progress and international trade. Some circumstances may lead to structural change: process or policy changes, job duplication and mergers and acquisitions. The government is supposed to ensure that there is no shift in an industry so that the level of unemployment will decrease. Failure to do this will cause the level of unemployment will continue to rise as days go by, thus affecting people living in an economy.


This study is all about the causes of unemployment in an economy. Some causes discussed are occupational immobility, technological change, geographical immobility and structural change. Governments have devised measures to control or decrease the level of unemployment in an economy. Some of the measures that government can use to reduce unemployment rates: are partnering with the private sector to create employment, adopting a relevant education system, control of population growth, diversification of economic activities, and adopting policies that encourage labour-intensive methods of production. When the government in an economy implies some of these measures, the level of unemployment will decrease, and this will make people living in a certain economy to earn income; hence their standard way of living will be high.


Dankert, C. E. (1941). Labour immobility and technological unemployment. Social Forces, 426-434.

Rip, A., & Kemp, R. (1998). Technological change. Human choice and climate change2(2), 327–399.

Dankert, C. E. (1941). Labour immobility and technological unemployment. Social Forces, 426-434.

Uy, T., Yi, K. M., & Zhang, J. (2013). Structural change in an open economy. Journal of Monetary Economics60(6), 667–682.


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