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In this article, Keith Brunskill examines the reasons why firms will cut back on employment in certain circumstances and why this can create problems even in a growing economy.
Summary of Key Points
* Firms combine labour with other factors of production to produce goods or services which will make a profit for their shareholders.
* When sales fall, or costs rise, firms may cut back on their demand for labour as profits fall.
* Even in a growing economy some jobs will be lost, and labour immobility may create regional problems.
* This is particularly true when a whole sector such as coal mining is in structural decline.
* Government will tend to concentrate on supply side policies to reduce unemployment.
PDF format: 3 A4 pages. First published in Economics Today magazine November 2002.
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