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IAI Actuarial Core Principles · Business Economics · Business activity, unemployment and inflation

In the early 2000s, many Indian bank branches replaced manual ledger clerks with core banking software, leaving some clerks without jobs until they retrained for other roles. Which type of unemployment does this best illustrate?

This is structural unemployment. Technology removed a type of job, so the clerks' skills no longer matched available vacancies. The problem is a lasting skills mismatch rather than a fall in aggregate demand or a short job search between jobs.

  1. ACyclical unemployment
  2. BStructural unemploymentCorrect
  3. CFrictional unemployment
  4. DSeasonal unemployment
  5. Voluntary unemployment caused by a high reservation wage

Explanation

Technological change eliminated a type of job, and the workers' skills no longer match the vacancies available. That is a mismatch of skills or location, which defines structural unemployment. Cyclical unemployment would come from a fall in aggregate demand, which is not the cause here.

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