Causes for Structural Unemployment

1. Explain what you would expect to see happen, and why, during a contraction in economic activity to the levels of output, employment and prices. Be sure to explain why you would expect these things to occur.

An economic contraction is a phase in the business cycle where economic activity declines. An economic contraction occurs if real GDP declines for two or more straight quarters. (Investopedia, 2013). “Real GDP (Real Gross Domestic Product) is the value of final goods and services produced in a given year when valued at constant prices.”(Parkin, 2005, p. G-7).

During an economic contraction output for durable goods (e.g. furniture, automobiles, appliances, etc.) decreases as consumers cut back on spending for these goods. Additionally, output for durable goods decreases as inventories, housing, and office space increase. Output for non-durable goods and services (e.g. food, clothing, doctors visits, etc.) during an economic contraction remains relatively constant. Output for non-durable goods remains constant due to the fact that even in an economic contraction consumers must still purchase items such as food and clothing and so the demand for these items remains constant. (Harrington, 2013).

Employment for individuals in the durable goods industry decreases during an economic contraction. During an economic contraction a shortage of jobs is caused by deficient aggregate demand, this leads to cyclical unemployment. (Harrington, 2013). Aggregate demand is the total amount of goods and services demanded in the economy at a given price and in particular time period. (Investopedia, 2013). Skilled production workers who produce durable goods are mostly affected by cyclical unemployment as consumers reduce spending on durable...

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...oyment Sources. Retrieved from http://www.amosweb.com/cgi-bin/awb_nav.pl?s=wpd&c=dsp&k=unemployment+sources Business Dictionary. (2013). Seasonal Unemployment. Retrieved from http://www.businessdictionary.com/definition/seasonal-unemployment.html Harrington, C. (2013). Measuring the Macro Economy-Inflation. Personal Collection of C.

Harrington, Nova Southeastern University, Fort Lauderdale, FL.

Investopedia US. (2013). Aggregate Demand. Retrieved from http://www.investopedia.com/terms/a/aggregatedemand.asp Investopedia US. (2013). Definition of Contraction. Retrieved from http://www.investopedia.com/terms/c/contraction.asp Investopedia US. (2013). Definition of Structural Unemployment. Retrieved from http://www.investopedia.com/terms/s/structuralunemployment.asp Parkin, M. (2005). Macroeconomics (7th ed.). Boston, San Francisco, New York: Addison-

Wesley.