GM 545: Business Economics

Chapter 16, Question 5 Unemployment rates in the U.S. are classified under two types, the frictional and structural unemployment. Frictional unemployment depends on the level of demand while structural unemployment depends on the relationship between labor skills and industrial changes that are mostly related to technology (Gilpatrick 1966). Frictional unemployment will always be present in any economy, even a high performing one, and is also vital and beneficial to every economy. A recent study suggested that the industrial structure of cities plays an important role in determining the national rate of unemployment. The more industrially diversified the city is, the lower the rate of unemployment and the more evenly distributed employment is across industries (Simon 1988).
Frictional unemployment occurs naturally and appears when an individual is between jobs. This is typically a temporary transition from one position to the next. These individuals may be classified as first time job seekers, recent college graduates, or career advancers looking to hold out for corporate climb. These individuals are frictionally unemployed because they are not taking other career opportunities and are holding out for a better position. When a person quits their job to relocate, they are also considered frictionally unemployed. Another example of frictional unemployment is when a company decides not to hire due to lack qualified applicants that would be able to fill the position (Goodwin 2006).
Frictional unemployment is a benefit to the economy. It helps ensure unemployment rates will never be at zero. This keeps competition in the marketplace for the best individuals to fill positions. Frictional unemployment is essentially important to job seekers and employers alike.

Chapter 16, Question 11
There are three basic types of unemployment: structural, frictional and cyclical unemployment. Structural unemployment occurs when there is an absence in the demand for workers in a particular industry for an extended period of time. Some of the reasons for structural unemployment are: occupational difficulties, technological changes and geographical difficulties. “Structural unemployment arises through the inability or the failure of labour to adapt to changes in technology and changing demand so that unemployment becomes concentrated for long periods of time among specific occupational groups in particular areas (Standing 1983).” The government can combat this by focusing on technological advances. As certain technologies take the place of a human employee, the government should encourage companies to find other positions for those workers. The government can also start programs that assist displaced workers in finding employment and train them in new areas. They can also help encourage economic growth in new geographic regions. Enforcing industrial policies that encourage the development and retention of key industries through loans, subsidies and tax credits will also make a major difference. Frictional unemployment is the temporary transition of an individual from one position to the next. It can be caused by people who are between jobs, holding out for better positions, relocating, or new college graduates. Frictional unemployment can be reduced by the government by lowering the benefits people receive while claiming unemployment and by setting up career database to assist people with finding employment. Cyclical unemployment occurs when the economy is below full capacity. This occurs when the unemployment rate moves in the opposite direction as the GDP growth rate. When GDP growth is small unemployment rates are high (Mofatt, 2010). During a recession, unemployment rises as the demand for the products fall. As the economy recovers, Cyclical unemployment should decrease. Minimum wage and worker trade unions can have a large impact on this type of unemployment. Chapter 25, Question 7
The U.S Constitution protects the States in America by allowing free trade between the states. Article I, Section 8 of the U.S. Constitution gives Congress the power to regulate commerce and restrict and regulate commerce with both states and foreign governments. Article I, Section 9: “No Tax or Duty shall be laid on Articles exported from any State. No Preference shall be given by any Regulation of Commerce or Revenue to the Ports of one State over those of another: nor shall Vessels bound to, or from, one State, be obliged to enter, clear, or pay Duties in another”http://www.house.gov/house/Constitution/Constitution.html).
International countries are free to set up taxes and trade barriers with other countries. The U.S. government protects American trade by imposing tariffs on foreign imports. Foreign countries would to protect their people and economy. The North American Free Trade Agreement (NAFTA) was launched on January 1, 1994, and is one of the most successful trade agreements in history (USDA, 2008). This agreement has contributed to significant increases in agricultural trade and investment between the United States, Canada, Mexico and throughout North America. Not all countries set up free international trade in fact some countries choose economic integration or a free trade area if their economic structures are complementary. A free trade area is a trade block that includes countries who have signed a free trade agreement (FTA), which eliminates tariffs, import quotas, and preferences on most goods and services traded between them. “The reduction of trade barrier and the creation of a more stable and transparent trading investment environment make it easier and cheaper for U.S. companies to export their products and services to trading partner markets” http://trade.gov/fta/ .

References
Gilpatrick, E. (1966). ON THE CLASSIFICATION OF UNEMPLOYMENT: A VIEW OF THE STRUCTURAL-INADEQUATE DEMAND DEBATE. Industrial & Labor Relations Review, 19(2), 201-212.
Simon, C. J. (1988). FRICTIONAL UNEMPLOYMENT AND THE ROLE OF INDUSTRIAL DIVERSITY. Quarterly Journal of Economics, 103(4), 715-728.
Goodwin, N. (2006) "Types of unemployment". In: Encyclopedia of Earth. Eds. Cutler J. Cleveland (Washington, D.C.: Environmental Information Coalition, National Council for Science and the Environment).
Hansen, Bent, 1970. "Excess Demand, Unemployment, Vacancies and Wages,” The Quarterly Journal of Economics, MIT Press, vol. 84(1), pages 1-23, February.
Standing, G. (1983). The notion of structural unemployment. International Labour Review, 122(2), 137.
Mofatt, M. 2010, “Cyclical Unemployment” About.com.
USDA (2008). “North American Free Trade Agreement”, United States Department of
Agriculture. Retrieved from http://www.fas.usda.gov/info/factsheets/NAFTA.asp
“The United States Constitution”: http://www.house.gov/house/Constitution/Constitution.html
International Trade Administration (2011). “Free Trade Agreements”: http://trade.gov/fta/