Working Paper Series: Special Edition of 2016 to 2018 Interns

market in Saint Lucia with a view to understanding the nature of the unemployment hysteresis; Section 6 identifies the key sectors for employment that will contribute to growth and development in the medium to long term and finally section 7 offers the conclusion with policy prescriptions. Literature Review The literature has identified four types of unemployment which exist in an economy. The first type is frictional , which is seen as a natural process in an efficient labour market caused simply because workers are constantly looking for new jobs while firms are constantly looking for the best workers (Wagner, 2014). The second type, cyclical or seasonal is attributed to the busts and booms associated with the business cycle (Abraham & Katz, 1984). The theory suggests that the market usually adjusts itself in the short run in the case of the first two types of unemployment. The third type structural is trickier because of its tendency to affect the labour market over a prolonged period. Structural unemployment results when the fundamental make-up of the economy is altered following a recession, leaving a mismatch in skills that workers possess and skills that the job market requires (Wagner, 2014). Structural unemployment often leads to other complications including high youth unemployment, obsolete skills and discouraged workers and hence has received a considerable amount of attention in the literature. The final, is disguised often found in developing economies. This type of unemployment is described as an individual forced into self-employment in a residual sector in which the individual’s activities and income differ little from an unemployment status (Earle & Sarkova, 2000). In addition to the four types of unemployment, theory differentiates four causes of unemployment. First, the search and job mismatch theory which occurs when the labour market faces impediments in moving idle labour due to frictions caused by the time consuming and costly nature of the job search (Birchenall, 2010). The second, insider- outsider theory concerned with the conflict of interest between insiders, whose positions are protected by labour turnover costs and outsiders who are not protected (Lindbeck & Snower, 2002). Third, efficiency wage theory which hypothesizes that labour productivity depends on the real wage rate paid by the firm. Hence, cutting wages in periods of excess supply can end up raising labour costs (Yellen, 1995). Increased labour costs result in the net loss of labour. The Fourth and final structural unemployment caused 2.0

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