Causes of unemployment

 Large population.
 Lack of vocational skills or low educational levels of the working
population.
 Labour-intensive sectors suffering from the slowdown in private
investment particularly after demonetisation

 The low productivity in the agriculture sector plus the lack of alternative opportunities for
agricultural workers that makes transition among the three sectors difficult.
 Legal complexities, Inadequate state support, low infrastructural, financial and market linkages to
small businesses making such enterprises unviable with cost and compliance overruns.


Three important types of unemployment

Frictional Unemployment;
Frictional unemployment is a natural result of the fact that market processes take
time and information can be costly. Searching for a new job, recruiting new workers,
and matching the right workers to the right jobs all take time and effort. This results
in frictional unemployment

Cyclical Unemployment;

Cyclical unemployment is the variation in the number of unemployed workers over

the course of economic upturns and downturns, such as those related to changes in
oil prices. Unemployment rises during recessionary periods and declines during
periods of economic growth

Structural Unemployment;

Structural unemployment comes about through a technological change in

the structure of the economy in which labor markets operate.
Technological changes can lead to unemployment among workers
displaced from jobs that are no longer needed.

Causes of natural rate of unemployment

Changes in labour force characteristics
Experienced and skilled labour forces usually have
lower unemployment rates compared to unskilled and inexperienced
labour.

Changes in labour market institutions

Trade unions are one example of institutions that may affect the natural
unemployment rate. Unions allow employees to participate in negotiations
regarding the increase of salaries above the equilibrium rate, and this
causes the natural unemployment rate to rise

Changes in government policies

Government policies can increase or decrease the natural unemployment
rate.