Causes of Unemployment

Unemployment is caused when someone is laid off, fired or quits — and is still looking for a job. This type of natural unemployment always occurs, even in a healthy economy. If someone retires, goes back to school or leaves the work force to take care of children or other family member; that is not unemployment. Also, if someone gives up looking for work, they are also not counted as unemployed by the Federal government. For this reason, some people say the government undercounts the real unemployment rate.

There are many different possible causes of unemployment, and unfortunately for governments, it is never easy to identify which is the most important and what to do about it. The causes of unemployment can be split into two main types:

  1. Demand-side
  2. Supply-side


It is said to occur when there is not enough demand, as a result employers to not need many workers. This leads to demand deficient unemployment.


This is caused when there are too many people looking for a job, and there are not enough jobs in the economy. This can be seen in imperfect labour market. A perfect labour market will always clear and all those looking for work will be working – supply will equal demand.

The other major causes which have been responsible for the wide spread unemployment can be spelt out as under.

1. Population Growth

This is a major problem in developing countries where the population growth is enormous and the economy is not growing at that pace to generate enough jobs. The growth of population directly encouraged the unemployment by making large addition to labour force.

2. Limited Land

Land is a natural resource which is limited in nature, due to its limit the land is not sufficient for the growing population. As a result, there is heavy pressure on the land. In rural areas, most of the people depend directly on land for their livelihood. Land is very limited in comparison to population. It creates the unemployment situation for a large number of persons who depend on agriculture in rural areas.

3. Defective Education System

The education system is still historical and not updated since ages, it is still confined to classrooms and the main aim is to acquire certificates i.e. it is not job oriented. There needs to be a change in the system and it should aim at making students not just look for jobs but should look to create jobs i.e. entrepreneurial.


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