Answer to Question #202145 in Macroeconomics for Akhona Klanisi

Question

As a business economist, critically analyse how changes in the world price of oil affect the amount of frictional unemployment in a country

Answer 1

When the world price of oil rises, frictional unemployment rises because oil-producing firms increase output and employment while other firms, such as those in the auto sector, reduce output and employment. Higher frictional unemployment results from the sectoral transition from the car industry to oil enterprises for a period of time until workers have shifted from the auto industry to the oil business. Although no rise in unemployment is ideal, frictional unemployment is a normal result of resource reallocation. Government-run employment agencies, which can help autoworkers transition to the oil industry, job-training programs to help workers adapt to a new industry, and unemployment insurance, which keeps workers from suffering economic hardship while transitioning from one industry to another, are all examples of public policies that could affect the unemployment caused by this change in the price of oil.