Structural unemploymentthe unemployment that remains even at the peak

Question

Structural unemployment—the unemployment that remains even at the peak of the economy’s upswings—is caused by an imbalance between the types and locations of available employment on the one hand and the qualifications and locations of workers on the other hand. When such an imbalance exists, both labor shortages and unemployment may occur, despite a balance between supply and demand for labor in the economy as a whole.

Because technological change is likely to displace some workers, it is a major factor in producing structural unemployment. While technological advance almost invariably results in shifts in demands for different types of workers, it does not necessarily result in unemployment. Relatively small or gradual changes in demand are likely to cause little unemployment. In the individual firm or even in the labor market as a whole, normal attrition may be sufficient to reduce the size of the work force in the affected occupations. Relatively large or rapid changes, however, can cause serious problems. Workers may lose their jobs and find themselves without the skills necessary to obtain new jobs. Whether this displacement leads to structural unemployment depends on the amount of public and private sector resources devoted to retraining and placing those workers. Workers can be encouraged to move where there are jobs, to reeducate or retrain themselves, or to retire. In addition, other factors affecting structural unemployment, such as capital movement, can be controlled.

Increased structural unemployment, should it occur, makes it difficult for the economy to achieve desired low rates of unemployment along with low rates of inflation. If there is a growing pool of workers who lack the necessary skills for the available jobs, increases in total labor demand will rapidly generate shortages of qualified workers. As the wages of those workers are bid up, labor costs, and thus prices, rise. This phenomenon may be an important factor in the rising trend, observed for the past two decades, of unemployment combined with inflation. Government policy has placed a priority on reducing inflation, but these efforts have nevertheless caused unemployment to increase.   1 
RC00144-03 
 1. All of the following are mentioned as ways of controlling the magnitude of structural unemployment EXCEPT

A. using public funds to create jobs
B. teaching new skills to displaced workers
C. allowing displaced workers to retire
D. controlling the movement of capital
E. encouraging workers to move to where jobs are available

2 
RC00144-04
 2. The passage suggests that a potential outcome of higher structural unemployment is

A. increased public spending for social services
B. placement of workers in jobs for which they are not qualified
C. higher wages for those workers who have skills that are in demand
D. an increase in the length of time jobs remain unfilled
E. a shift in the government’s economic policy priorities

3 
RC00144-05
 3. It can be inferred from the passage that even when there are unemployed workers, labor shortages are still likely to occur if

A. the inflation rate is unusually high
B. there is insufficient technological innovation
C. the level of structural unemployment is exceptionally low
D. the jobs available in certain places require skills that the labor force in those areas lacks
E. the workers in some industries are dissatisfied with the pay offered in those industries

4 
RC00144-06 
 4. The passage suggests that the phenomenon of combined unemployment and inflation is

A. a socioeconomic problem that can only be addressed by government intervention
B. a socioeconomic problem that can be characteristic of periods of structural unemployment
C. an economic problem that results from government intervention in management-labor relations
D. an economic problem that results from imperfect applications of technology
E. an economic problem that can be eliminated by relatively small changes in the labor force

5 
RC00144-07
 5. The passage is primarily concerned with

A. clarifying the definition of a concept
B. proposing a way to eliminate an undesirable condition
C. discussing the sources and consequences of a problem
D. suggesting ways to alleviate the effects of a particular social policy
E. evaluating the steps that have been taken to correct an imbalance

6 
RC00144-08
 6. According to the passage, small downward shifts in the demand for labor will not usually cause unemployment because

A. such shifts are frequently accompanied by upswings in the economy
B. such shifts usually occur slowly
C. workers can be encouraged to move to where there are jobs
D. normal attrition is often sufficient to reduce the size of the work force
E. workers are usually flexible enough to learn new skills and switch to new jobs

OG 2019 ID's RC00144-03, RC00144-04, RC00144-05, RC00144-06, RC00144-07, RC00144-08

AkshayKS21 · Accepted Answer

Hi! Let me try. First D is mentioned in the passage here: While technological advance almost invariably results in shifts in demands for different types of workers, it does not necessarily result in unemployment. Relatively small or gradual changes in demand are likely to cause little unemployment. In the individual firm or even in the labor market as a whole, normal attrition may be sufficient to reduce the size of the work force in the affected occupations. Relatively large or rapid changes, however, can cause serious problems. When does unemployment occurs? When there is downward shifts in demand. But when this downward shift is small, passage says that it won't result in unemployment. Rather, firms may chose to "fire" few employees. Firing few employees (attrition) is not similar to unemployment-a situation caused by mass layoffs by multiple firms! This is what D says: normal attrition is sufficient to reduce size of work force. No mass layoffs necessary to counter the change-if it is small. Does it make sense? Now I am not GMATNinja, but tried to help

sach24x7 · Answer

You can try eliminating one by one 
A- contains only. Extreme generalisation
B- characteristics of stru. Unemployment. 
C- First and second para never says govt has done anything to create this
D- technology is one factor but problem exist without technology. 
E- not small changes but type and location both matters

Posted from my mobile device

KarishmaB · Answer

Question 1.

RC00144-03
 All of the following are mentioned as ways of controlling the magnitude of structural unemployment EXCEPT

A. using public funds to create jobs
B. teaching new skills to displaced workers
C. allowing displaced workers to retire
D. controlling the movement of capital
E. encouraging workers to move to where jobs are available

Given:
 Whether this displacement leads to structural unemployment depends on the amount of public and private sector resources devoted to retraining and placing those workers. Workers can be encouraged to move where there are jobs, to reeducate or retrain themselves, or to retire. In addition, other factors affecting structural unemployment, such as capital movement, can be controlled.

"Using public funds to create jobs" has not been mentioned in the passage.

Answer (A)

Question 2.

RC00144-04
The passage suggests that a potential outcome of higher structural unemployment is

A. increased public spending for social services
B. placement of workers in jobs for which they are not qualified
C. higher wages for those workers who have skills that are in demand
D. an increase in the length of time jobs remain unfilled
E. a shift in the government’s economic policy priorities

Given:
 Increased structural unemployment, should it occur, makes it difficult for the economy to achieve desired low rates of unemployment along with low rates of inflation. If there is a growing pool of workers who lack the necessary skills for the available jobs, increases in total labor demand will rapidly generate shortages of qualified workers.  As the wages of those workers are bid up , labor costs, and thus prices, rise. This phenomenon may be an important factor in the rising trend, observed for the past two decades, of unemployment combined with inflation.

An impact of higher structural unemployment is higher wages for those with skills in demand and eventually price rise and inflation.

Answer (C)

Question 3.

RC00144-05
It can be inferred from the passage that even when there are unemployed workers, labor shortages are still likely to occur if

A. the inflation rate is unusually high
B. there is insufficient technological innovation
C. the level of structural unemployment is exceptionally low
D. the jobs available in certain places require skills that the labor force in those areas lacks
E. the workers in some industries are dissatisfied with the pay offered in those industries

In usual circumstances, we expect that either there is unemployment or there is shortage of labour, not both.
Shortage of labour means jobs available but people not available. Unemployment means people available but jobs not available.
So if there is unemployment, people are available and if there is shortage of labour, jobs are also available - then you would match the two and both issues will get resolved.

Why would both issues persist? If the jobs available do not match the people available i.e. the skill required is not possessed by people in that area.
Hence (D) is correct.

What is structural unemployment? That technology advanced and made people with certain skills redundant and hence created unemployment. The advanced tech also created a requirement for a certain skill that people in the area do not possess so it created labour shortages also.
Hence, in areas of high structural unemployment (say major upgrade in tech), we will find that unemployment and shortage of labour co-exist.
Option (C) says the opposite "the level of structural unemployment is exceptionally LOW." This is incorrect.

Capital movement is the movement of money that is invested. If a place has high structural unemployment, the new capital investments (new tech, upgrades etc.) can be avoided in those areas and instead can be diverted to areas where people with relevant skills live.

Answer (D)

Question 4. 
RC00144-06
The passage suggests that the phenomenon of combined unemployment and inflation is

A. a socioeconomic problem that can only be addressed by government intervention
B. a socioeconomic problem that can be characteristic of periods of structural unemployment
C. an economic problem that results from government intervention in management-labor relations
D. an economic problem that results from imperfect applications of technology
E. an economic problem that can be eliminated by relatively small changes in the labor force

Look at the last paragraph:

Increased structural unemployment makes it difficult for the economy to achieve low unemployment along with low rates of inflation. If there is a growing pool of workers who lack the necessary skills for the available jobs (i.e. if there is structural unemployment), increases in total labor demand will ... and thus prices, rise. This phenomenon may be an important factor in the rising trend of unemployment combined with inflation. Government policy has placed a priority on reducing inflation, but these efforts have nevertheless caused unemployment to increase.

A period of structural employment can have unemployment + inflation at the same time.

Normally, one would expect that when economy does well, unemployment is low but because people have more money and they spend more, inflation increases.
When economy doesn't do well, unemployment is high but inflation is low.

So one would normally expect that if one of them is high, the other is low. But periods of structural unemployment could have inflation too.

The paragraph also mentions that Govt has tried to control inflation but that has made unemployment worse. So even the Govt hasn't been able to resolve this issue. Whether it can be addressed in another way, we don't know.

Answer (B)

Question 5. 
RC00144-07
The passage is primarily concerned with

A. clarifying the definition of a concept
B. proposing a way to eliminate an undesirable condition
C. discussing the sources and consequences of a problem
D. suggesting ways to alleviate the effects of a particular social policy
E. evaluating the steps that have been taken to correct an imbalance

The passage talks about what structural unemployment is, what causes it, what may help control it and what are the consequences if it does occur.
Hence option (C) works the best here.

Answer (C)

Question 6. 
RC00144-08
According to the passage, small downward shifts in the demand for labor will not usually cause unemployment because

A. such shifts are frequently accompanied by upswings in the economy
B. such shifts usually occur slowly
C. workers can be encouraged to move to where there are jobs
D. normal attrition is often sufficient to reduce the size of the work force
E. workers are usually flexible enough to learn new skills and switch to new jobs 
We need to answer as per what is given in the passage. We are given:

While technological advance almost invariably results in shifts in demands for different types of workers, it does not necessarily result in unemployment. Relatively small or gradual changes in demand are likely to cause little unemployment. In the individual firm or even in the labor market as a whole, normal attrition may be sufficient to reduce the size of the work force in the affected occupations.

This is what is given to us about "small shifts in demand". It doesn't cause unemployment. Normal attrition is sufficient to reduce the size of work force in the affected occupations. It means that if demand decreases a bit in certain occupations, normal attrition is enough to take care of it without the need to remove people from jobs. Normally, people keep moving from one job to another. In occupations where demand decreases slightly, once someone quits, a new person will not be hired. So no one will need to be fired. Hence normal attrition will take care of the small decreases in demand.

Answer (D)

KanakGarg · Answer

Need a help on answering (Book Question: 8)

The passage suggests that the phenomenon of combined unemployment and inflation is
A. a socioeconomic problem that can only be addressed by government intervention
B. a socioeconomic problem that can be characteristic of periods of structural unemployment
C. an economic problem that results from government intervention in management-labor relations
D. an economic problem that results from imperfect applications of technology
E. an economic problem that can be eliminated by relatively small changes in the labor force

I could not reach to choice B anyhow... please help which line can lead to this answer in last para

Thanks in advance!!

LeoGT · Answer

For me, choice B is from the following evidence: 
 This phenomenon  may be an important  factor in the rising trend , observed for the past two decades, of unemployment combined with inflation

in the passage, "this phenomenon" is that: Increased structural unemployment=>wages of shortage qualified workers are bid up, labor costs, and thus prices, rise. 
the passage tell us that "this phenomena" is important factor to create a trend: "combined unemployment and inflation"
So this trend is characteristics of structural unemployment. 
Analogy: people who have flu usually cough. So cough is a characteristic of flu.

pikolo2510 · Answer

(Book Question: 10)
According to the passage, small downward shifts in the demand for labor will not usually cause unemployment because
A. such shifts are frequently accompanied by upswings in the economy
B. such shifts usually occur slowly
C. workers can be encouraged to move to where there are jobs
D. normal attrition is often sufficient to reduce the size of the work force
E. workers are usually flexible enough to learn new skills and switch to new jobs

In the above question, how is option D the correct answer? Can anyone explain?  GMATNinja

aragonn · Answer

P1 - wat is SU?
P2 - factors affecting SU + job loss is not bad. why?
P3 - effects of above thing

RC00144-03 
All of the following are mentioned as ways of controlling the magnitude of structural unemployment EXCEPT

Workers can be encouraged to move where there are jobs, to reeducate or retrain themselves, or to retire. In addition, other factors affecting structural unemployment, such as capital movement, can be controlled.

A. using public funds to create jobs - correct; except this all are given in P2
B. teaching new skills to displaced workers - 
C. allowing displaced workers to retire - 
D. controlling the movement of capital - 
E. encouraging workers to move to where jobs are available -

-------------------------------------
RC00144-04
The passage suggests that a potential outcome of higher structural unemployment is
As the wages of those workers are bid up,
C. higher wages for those workers who have skills that are in demand - yes

--------------------------------------

RC00144-05
It can be inferred from the passage that even when there are unemployed workers, labor shortages are still likely to occur if

If there is a growing pool of workers who lack the necessary skills for the available jobs, increases in total labor demand will rapidly generate shortages of qualified workers.

D. the jobs available in certain places require skills that the labor force in those areas lacks
----------------------------------------
RC00144-06 
The passage suggests that the phenomenon of combined unemployment and inflation is

This phenomenon may be an important factor in the rising trend, observed for the past two decades, of unemployment combined with inflation. Government policy has placed a priority on reducing inflation, but these efforts have nevertheless caused unemployment to increase.

A. a socioeconomic problem that can only be addressed by government intervention - too extreme, not sure if it can be addressed by that.
B. a socioeconomic problem that can be characteristic of periods of structural unemployment - unemployment and inflation can be characteristic of SU.
C. an economic problem that results from government intervention in management-labor relations - no
D. an economic problem that results from imperfect applications of technology - not always.
E. an economic problem that can be eliminated by relatively small changes in the labor force - not always.

---------------------------------------

RC00144-07
The passage is primarily concerned with

A. clarifying the definition of a concept - p1
B. proposing a way to eliminate an undesirable condition - weak
C. discussing the sources and consequences of a problem - best of the lot.
D. suggesting ways to alleviate the effects of a particular social policy - no
E. evaluating the steps that have been taken to correct an imbalance - no

-----------------------------------------

RC00144-08
According to the passage, small downward shifts in the demand for labor will not usually cause unemployment because
In the individual firm or even in the labor market as a whole, normal attrition may be sufficient to reduce the size of the work force in the affected occupations.

D. normal attrition is often sufficient to reduce the size of the work force

mSKR · Answer

While technological advance almost invariably results in shifts in demands for different types of workers, it does not necessarily result in unemployment. Relatively small or gradual changes in demand are likely to cause little unemployment. In the individual firm or even in the labor market as a whole, normal attrition may be sufficient to reduce the size of the work force in the affected occupations. Relatively large or rapid changes, however, can cause serious problems.

Hi  AndrewN  Sir

The question seems simple yet confusing.

The question asks: low demand of labor workers will not cause unemployment - why? 
Mind says it still creates at least some unemployment but as given in passage ", it does not necessarily result in unemployment." I move on to answer the question:

When I read D: normal attrition is often sufficient to reduce the size of the work force.
I can't understand how attirition is the reason for not causing unemployment. Infact it seems after low demand , attrition is adding further to unemployment.
(attrition : remove workers and not replaced )
In passage , statements are given as facts one after another. I don't know how can I make it as  cause ( because)

What Important piece of logic am I missing here ?
That's why the question seems simple yet confusing for me:(

Thanks! AndrewN

AndrewN · Answer

Hello,  mSKR . You ask a question that touches on a point that a client of mine brought up during a recent lesson: how do you identify a premise or conclusion in a passage? We were talking about CR, but the snippet of text you quoted above fits the bill. Ask yourself if you could place a  because  or a  therefore  ahead of the sentence to run a quick identification test:  because  introduces a premise,  therefore  a conclusion. If we take the first sentence as more informational or contextual, we can then test subsequent sentences in the manner I have outlined:

While technological advance almost invariably results in shifts in demands for different types of workers, it does not necessarily result in unemployment.  Because / Therefore ] Relatively small or gradual changes in demand are likely to cause little unemployment.  Because / Therefore ] In the individual firm or even in the labor market as a whole, normal attrition may be sufficient to reduce the size of the work force in the affected occupations.  Because / Therefore ] Relatively large or rapid changes, however, can cause serious problems.

The first and second sentences do indeed provide "statements... given as facts one after another," but that third sentence really seems to offer an explanation for the second, answering the question,  Why are relatively small or gradual changes in demand likely to cause little unemployment?  The final line from the excerpt goes back to adding another statement or claim: neither  because  nor  therefore  will work. It is this relationship between the second and third sentences that allows us to arrive at the correct answer to the question.

Remember, you should be able to find the answer directly in most  according to the passage  questions. In this case, the keywords from the question stem pair up nicely with those in the excerpt you quoted, but the missing link appears to have been an inability to identify the premise or support for the statement given in the second sentence.

I hope that helps clarify the matter. Thank you for thinking to ask.

- Andrew

mSKR · Answer

Hi  AndrewN  sir

Although it seems still little confusing to me , I thought 2 below points:
Please correct my understanding.

1. 
The question is : why reduce in demand doesn't cause  USUALLY  unemployment (will not usually cause unemployment because)
little reduction in workforce or technology change doesn't cause serious problem ( maybe cause little unemployment- small or gradual changes in demand)
 Relatively small or gradual changes in demand are  likely  to cause  little unemployment .)  
 this little unemployment  can't be considered  usual unemployment.

2.After reading your analysis, I linked these 2 statements as below:  (Relatively small or gradual changes in demand are likely to cause little unemployment. In the individual firm or even in the labor market as a whole,  normal attrition may be sufficient to reduce the size of the work force in the affected occupation s . )

So it means normal attrition remove a number of workers. This number of workers is higher than the number of workers removed due to relatively small or gradual changes in demand .
That's why remove of workers due to change in demand actually can not be considered as unemployment.

Is my understanding correct?

Please suggest  AndrewN  sir.

AndrewN · Answer

Hello,  mSKR . I would say that your approach still seems overwrought. You appear to be reading into each sentence for more meaning when the task with standardized test questions is to get in and get out, to walk away with the answer without doing too much work. (Save those brain cells for tougher challenges.) My message may not have been clear enough earlier. By identifying the premise in the middle of the excerpt, you can read the two lines back-to-back and effectively insert  because  between the lines in question, and since the question fits this very frame, we know we have our answer. Take a look at the question stem again:

Now, take a look at the excerpt you quoted before, but with  because  inserted:

Notice that what follows  or even  comments on the entire labor market. The only answer that fits the keywords of the premise we have identified is (D), nearly verbatim at that (only swapping out  may be sufficient  for  is often sufficient ). You could have no idea what  attrition  was, and you should still be able to walk away with the correct answer. I did not bother going any deeper than scratching the surface, and  according to the passage  questions frequently lend themselves to being solved in such a manner.

You do not have to get to the bottom of everything or think in real-world terms to answer such a question quickly and with relative ease.

- Andrew

Sajjad1994 · Answer

Official Explanation

5. The passage is primarily concerned with

Difficulty Level:   550

Main idea

This question depends on understanding the passage as a whole in order to identify its primary concern. The  first paragraph  defines structural unemployment (which the passage, in its second paragraph, indicates is a serious problem). The  second paragraph  describes a major factor that can cause structural unemployment, as well as some steps that might be taken to alleviate it. Finally, the  third paragraph  identifies possible effects of structural unemployment, including wage and price inflation.

A.  The first paragraph clarifies the definition of structural unemployment, but this definition is not the passage's primary concern.

B.  The passage's second paragraph indicates some ways that an increase in structural unemployment can be mitigated, but nowhere does the passage suggest that the condition can be eliminated entirely.

C.  Correct.   The passage discusses the problem of structural unemployment, explaining how it can arise and what some of its consequences may be.

D.  The passage does suggest some ways in which structural unemployment might be alleviated, but this kind of unemployment is not characterized as an effect of a social policy. Rather, it is a state of economic affairs.

E.  The second paragraph identifies some steps that could be taken to correct a particular situation of worker displacement. It does not, however, evaluate those steps.

The correct answer is C.

ag153 · Answer

KarishmaB  Pls explain Q6 - B and D. I also do not understand how attrition can be a reason for no unemployment? Rather attrition should be the reason for the same. And so what if "normal attrition is sufficent to reduce the size of workforce?" Well that us a bad thing that attrition is sufficient to reduce the size of workforce because that is what is causing unemplyment

KarishmaB · Answer

Q 6
According to the passage, small downward shifts in the demand for labor will not usually cause unemployment because

A. such shifts are frequently accompanied by upswings in the economy
B. such shifts usually occur slowly
C. workers can be encouraged to move to where there are jobs
D. normal attrition is often sufficient to reduce the size of the work force
E. workers are usually flexible enough to learn new skills and switch to new jobs

While technological advance almost invariably results in shifts in demands for different types of workers, it does not necessarily result in unemployment. Relatively small or gradual changes in demand are likely to cause little unemployment. In the individual firm or even in the labor market as a whole, normal attrition may be sufficient to reduce the size of the work force in the affected occupations.

This is what is given to us about "small shifts in demand". It doesn't cause unemployment. Normal attrition is sufficient to reduce the size of work force in the affected occupations. It means that if demand decreases a bit in certain occupations, normal attrition is enough to take care of it without the need to remove people from jobs. Normally, people keep moving from one job to another. In occupations where demand decreases slightly, once someone quits, a new person will not be hired. So no one will need to be fired. Hence normal attrition will take care of the small decreases in demand.

woohoo921 · Answer

AndrewN Since, I see that you were active on this form, I would be so appreciative to learn of your thoughts on the following: For "it can be inferred from the passage that even when there are unemployed workers, labor shortages are still likely to occur if" For choice C, is "exceptionally low" what makes this answer choice incorrect? The passage defines structural unemployment as this imbalance and with this imbalance, labor shortages MAY occur. I am just confused because the passage does not seem to explicitly say that there is a correlation in a certain direction at all (e.g., less structural unemployment = less imbalance or more structural unemployment = more imbalance.) Furthermore, what does the passage mean by "capital movement"? Thank you for your time. KarishmaB I am not sure if Andrew is still active. I see that you recently weighed in. I would be so appreciative to learn of your thoughts. Thank you for all of your help. My big exam day is in two days.... almost at the finish line

perseverance2021 · Answer

RC00144-06
The passage suggests that the phenomenon of combined unemployment and inflation is

A. a socioeconomic problem that can only be addressed by government intervention
B. a socioeconomic problem that can be characteristic of periods of structural unemployment
C. an economic problem that results from government intervention in management-labor relations
D. an economic problem that results from imperfect applications of technology
E. an economic problem that can be eliminated by relatively small changes in the labor force

Although I marked the correct option for this question, I did that using POE.

Lately I am trying to emphasize more on the exact/correct reasons to not select an incorrect answer choice and select a correct answer choice.
Can experts  GMATNinja   RonTargetTestPrep   KarishmaB  help me on the my understanding ?

A. a socioeconomic problem that can  only  be addressed by government intervention
The word  "ONLY"  is a strong word. Although the passage mentions that govt is doing something for the inflation, but it is nowhere mentioned that it is the only thing to tackle the problem.
B. a socioeconomic problem that can be characteristic of periods of structural unemployment
a socioeconomic problem - "phenomenon of combined unemployment and inflation" 
I do not understand  - "characteristic of periods of structural unemployment"   from the question stem. What exactly does it mean ?
Does it mean that the whenever structural unemployment occurs (at different times/periods) , it also causes inflation ? 
C. an economic problem that results from government intervention in management-labor relations
Govt intervening in labor management has not be mentioned in the passage.
D. an economic problem that results from imperfect applications of technology
The first sentence of the 2nd para states - "technological change is a major factor in producing structural unemployment."
The question asks about both - "phenomenon of combined unemployment and inflation".
Technology definitely causes some unemployment , but we can't be sure that this also cause the inflation.
E. an economic problem that can be eliminated by relatively small changes in the labor force
Not sure if changes in labor force will definitely help with tackling the inflation issue.
May be it does , but the inflation can still be caused by some reasons other than unemployment.

KarishmaB · Answer

Look at the last paragraph:

Increased structural unemployment makes it difficult for the economy to achieve low unemployment along with low rates of inflation. If there is a growing pool of workers who lack the necessary skills for the available jobs (i.e. if there is structural unemployment), increases in total labor demand will ... and thus prices, rise. This phenomenon may be an important factor in the rising trend of unemployment combined with inflation. Government policy has placed a priority on reducing inflation, but these efforts have nevertheless caused unemployment to increase.

A period of structural employment can have unemployment + inflation at the same time.

Normally, one would expect that when economy does well, unemployment is low but because people have more money and they spend more, inflation increases. 
When economy doesn't do well, unemployment is high but inflation is low.

So one would normally expect that if one of them is high, the other is low. But periods of structural unemployment could have inflation too.

The paragraph also mentions that Govt has tried to control inflation but that has made unemployment worse. So even the Govt hasn't been able to resolve this issue. Whether it can be addressed in another way, we don't know.

Answer (B)

KarishmaB · Answer

I think  AndrewN  is active in the forum but since your exam is coming up (Best wishes!), here is my analysis:

RC00144-05
It can be inferred from the passage that even when there are unemployed workers, labor shortages are still likely to occur if

A. the inflation rate is unusually high
B. there is insufficient technological innovation
C. the level of structural unemployment is exceptionally low
D. the jobs available in certain places require skills that the labor force in those areas lacks
E. the workers in some industries are dissatisfied with the pay offered in those industries

In usual circumstances, we expect that either there is unemployment or there is shortage of labour, not both. 
Shortage of labour means jobs available but people not available. Unemployment means people available but jobs not available. 
So if there is unemployment, people are available and if there is shortage of labour, jobs are also available - then you would match the two and both issues will get resolved.

Why would both issues persist? If the jobs available do not match the people available i.e. the skill required is not possessed by people in that area. 
Hence (D) is correct.

What is structural unemployment? That technology advanced and made people with certain skills redundant and hence created unemployment. The advanced tech also created a requirement for a certain skill that people in the area do not possess so it created labour shortages also. 
Hence, in areas of high structural unemployment (say major upgrade in tech), we will find that unemployment and shortage of labour co-exist. 
Option (C) says the opposite "the level of structural unemployment is exceptionally LOW." This is incorrect.

Capital movement is the movement of money that is invested. If a place has high structural unemployment, the new capital investments (new tech, upgrades etc.) can be avoided in those areas and instead can be diverted to areas where people with relevant skills live.

akshitab2912 · Answer

Hi  chetan2u   generis   KarishmaB   GMATNinjaTwo   GMATNinja : I am unable to wrap my head around option D for the last question.

My contention with D is that a decrease in demand will not cause unemployment because attrition will reduce the size of the workforce - but if attrition will reduce the size of the workforce - where will the people who had undergone attrition go? Will they resign or will they retire or will they be fired? Because at the end of the day, attrition will reduce the size of the team & hence little unemployment will happen. But the question says that little unemployment will also not happen. Unemployment means the state of being unemployed. That is a state of not working/joblessness. Unemployment can be 1% or 10% - how is that even relevant? Unemployment will happen. So Option C or D according to me should be the answer because people who would have gone attrition would go find job somewhere or pick up some other skill. I am miserable, pls help.

Structural unemploymentthe unemployment that remains even at the peak

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Structural unemploymentthe unemployment that remains even at the peak

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