JC Economics Essay Series #11 – Cyclical & Structural Unemployment

JC Economics Cyclical & Structural Unemployment Essay Model Answers 

A sample question series on the goals of Cyclical & Structural Unemployment, as well the effective macro economic policies. These 2 forms of unN are more severe, as compared to frictional and seasonal ones.


JC Economics Essay Outline – Types of Unemployment

Explain the main causes of unemployment in Singapore.

Unemployment rate in Singapore averaged around 2.8% in 2018, before hit a high of 4.1% in 2020 (COVID-19 impact). The main sources of unemployment in Singapore is structural, as well as increasing demand deficiency unemployment in 2020 due to the health crisis and recession.


Demand deficiency unemployment was rising in 2009 since the global recession started second half of 2008. Unemployment usually lagged behind the recession as firms needs time to react to the situations. The weakening of the export sectors not only reduced employment opportunity, also led to higher retrenchment. The weakening of the domestic sectors, particularly the retail and services industries, led to a higher rate of unemployment.


Singapore’s economy underwent the restructuring since 2001 to move towards knowledge based and high end industries. In the process of economy restructuring, structural unemployment increased as the some workers, usually unskilled, could not fit into the newly created industries. The structural shift in the economy makes the skills of workers lag behind the new sectors and thus become redundant. For example, when the electronic industry moved from manufacturing to electronic services and R&D, workers without the appropriate skills will be out of jobs, and thus replaced by foreign talents. The trends towards globalization which removes the barriers of human capital flow has worsen the problems of structural unemployment as firms are less reluctant to train workers given the alternative sources of ready skilled workforce from other countries. The move towards services oriented industries, like the IRs, has also contributed to the rise of structural unemployment. Structural unemployment will be a long term problems faced by the Singapore with her continued efforts to stay competitive through economy restructuring.


Alternative Essay Response to Types / Causes of Unemployment

Unemployment refers to the number of people who are willing and able to work but are unable to find a job. It can be measured by the unemployment rate of a country, which is defined as the fraction of the labour force that is unemployed. In the Singapore’s economy, there are different causes of unemployment that may arise. Involving frictional, cyclical and structural unemployment.


Structural unemployment is one of the main causes of unemployment in Singapore. This could be attributed to labour mismatch, which refers to a persistent imbalance between supply and demand for labour across skill groups and industries. As such, while there are significant job vacancies, the unemployed are unable to fill them because they do not meet the skill requirements of the new jobs. The danger of labour mismatch has increased in recent years due to globalisation and the fast pace of technological changes. As such, there is an increase in the need for higher skills and educational qualifications to perform the new jobs created.


In Singapore, production workers, service workers and lower educated workers are more likely to have problems meeting the skill requirements of new jobs created. This is due to the rapid restructuring and upgrading of our manufacturing sector, and the move towards more knowledge-based activities. As a result, the unemployment rates for these groups of workers tend to be consistently higher than those of their skilled professional counterparts.


In addition, cyclical unemployment is also a major cause of unemployment in Singapore. This type of unemployment is associated with changes in business conditions. It arises because the economy is in a recession and caused by a deficiency in aggregate demand. In particular, when the economy is in a recession, consumer demand falls. Firms experience difficulties to sell all their current output. As a result, they cut back production and subsequently reduce the number of units of labour employed. The actual unemployment rate thus rises above the natural rate of unemployment. For instance, during the Global Financial Crisis in 2008, demand for Singapore’s exports fell due to the synchronized global economic slowdown, leading to a fall in demand of her exports. Subsequently, there is a fall in demand of the workers employed, leading to cyclical unemployment.


Furthermore, frictional unemployment is also a cause of unemployment in Singapore. This type of unemployment is associated with the continuous flow of individuals from job to job or in and out of employment. In Singapore, there will always be unemployment as resources need time to be redirected within the market. Specifically, it takes time for workers to be matched with suitable jobs and is a result of market imperfections such as imperfect knowledge of existing market conditions.


In conclusion, frictional, cyclical and structural unemployment are major causes of unemployment in Singapore. Due to globalisation, Singapore’s economy has become more vulnerable to external forces, leading to both cyclical and structural unemployment in recent years.
(note: if running out of time, can omit frictional unN.)


JC Economics Essay – Macro Policies & Tackling Unemployment

Discuss the policy options to solve unemployment in Singapore.

Cyclical / demand deficiency:
Expansionary FP through rise in AD and multiplier process; However, limited impacts on solving unN in Singapore, as job were created in construction industry and small k-effect on retail & services industries. (More application of fiscal policy here)

. Job credit scheme => forms of subsidies to firms in retaining workers during recession in 2009 and again in 2020;

More info on Expansionary FP and COVID impacts on S’pore here

. Training & retraining (i.e. Supply Side Policy) via various government’s initiated/support training programmes: (SGUnited Skills Training, TeSA Tech Skills in 2020)

Skills Programme for Upgrading and Resilience (SPUR), is an enhanced funding scheme developed to scale up training programmes to help companies and workers during the recent economic downturn and to build strong capabilities for the recovery. By tapping on the available funding, workers are able to upgrade skills (up-skull) to do better in current job or acquire new skills (re-ski) to take on jobs in a new industry. The goal is to help workers remain employable, save their job and strengthen their capability to prepare for the economic upturn. Constant fine tuning the educational system to prepare a knowledge based economy and to equip future workforce with appropriate skills sets.


In general, fiscal policy cannot solve supply side unemployment. there is frictional or structural unemployment, fiscal policy will not solve this. For example, suppose some factory workers are unemployed due to reallocation of factories to China and they cannot fit in the newly developed industries. The problem here is lack of skills and skill immobility. Therefore, what is needed is supply side policies. Increasing AD and economic growth does not solve the mismatch of skills.