According to Miller (1994, p.1), the United Kingdom experiences three main types of unemployment, each having its own subset that must be independently examined in order to obtain a more detailed picture of unemployment that is felt. An example of frictional unemployment is search unemployment which occurs when workers do not take the first job they are offered and thus are "needlessly unemployed" (Miller 1994, p.1)On the other hand, real wage unemployment occurs as "cyclical unemployment" wherein the general case exists due to the excess labour supply in the economy brought about by the real wage rate set above the market clearing level (Miller 1994, p.2).Frictional unemployment is transitional unemployment due to people moving between jobs (Tutor2u Limited 2005). Miller cites that factors such as set minimum wage, high benefit levels and poverty trap existence are the most common contributors of real wage unemployment.The third type of unemployment that exists in UK is demand deficient unemployment (refined by Keynes), which in the general case occurs due to a deflationary gap that exists in the economy and thus aggregate supply outnumbers demand. It is an involuntary unemployment caused by the lack of aggregate demand for goods and services (Tutor2u Limited 2005). Keynesian unemployment, according to Miller, can be also be analysed in seasonal, structural and technological aspects. Seasonal unemployment varies with the time of the year, regional structural unemployment occurs when some geographic areas face higher unemployment rates than other areas while technological unemployment is simply a shortage of labour demand caused by advancements in technology (1994, p.4).
Unemployment Sources and Possible Solutions in the UK
According to Miller (1994, p.4), the presence of demand deficient unemployment in UK is caused by high interest rates and restraints on government spending. Higher interest rates leads to high exchange rates and cheap imports and hence, demand becomes elastic. Similarly, restraints on government spending, particularly on benefit payments, lead to curtailment on consumption. Other "minor" factors causing the presence of demand deficient unemployment include the large volume of "hot money" inflows from overseas as well as high levels of overseas investment.
Also, the lack of proper training and skills is a crucial indicator of unemployment itself, particularly, the increased demand for skilled labour with relative to unskilled labour, coupled with the increase in the required flexibility on the part of the workforce. Adams et al cite that it continues to be a persistent feature of UK employer surveys on labour market issues that one of the major obstacles to increased production and/or expansion is the lack of skilled and experienced workers available to firms at any given time (2004, p.3). Apparently, increased production will require increased factors of production which may include labour.
According to Miller, the main cause of real wage unemployment in UK is unwillingness on behalf of employers to take on the long-term unemployed, who would be willing to accept a slightly lower wage. To solve such, retraining schemes must be improved as well as the government keeping an alternative labour supply in order for firms to immediately replace those workers who ask for excessively high wages. Increasing the mobility of the workforce in the economy with the similar effect (1994, p.2).
To rid the UK economy with real wage unemployment, the average real wage level must be lowered to the market-clearing wage. However, supposed "cures" for achieving this, Miller cautions, is to have a very small amount of inflation in the economy hoping workers will view that their wages are still the same when in reality their value is falling(1994, p.2). On the other hand, labour can be made to accept lower wages such as benefit levels can be lowered or benefits can be placed on top of low wages, thus decreasing the power of the poverty trap. However, an