CFA Practice Question

CFA Practice Question

A software developer loses his job as a result of outsourcing to a firm in India. In fact most of the software development jobs in his city are now outsourced in India. This software developer is suffering from what type of unemployment?
A. Structural unemployment.
B. Frictional unemployment.
C. Cyclical unemployment.
Explanation: Structural unemployment results from changes in the basic composition of the economy. These changes simultaneously open new positions for trained workers.

User Contributed Comments 5

User Comment
Kashi2010 Wiki: 'Frictional unemplopyment involves people in the midst of transitioning between jobs, searching for new ones'

Doesnt seem to me that the question gave sufficient detail to decide whether it was structural or frictional?!
bhaynes The notes discuss how Structural unemployment results from the individuals skills becoming obsolete. Frictional is when they have the skills but can't work.

Just because these jobs were outsourced doesn't mean that the workers no longer have the skills required. Were these the only software development jobs? Did every company in the country outsource the jobs? Can he move to another city? Hard to say. Anyway, structural unemployment would be better answer although more details are needed.
Insipidity The software developer who lost his job still has the skills for the said job; it's just that outsourcing is cheaper, amongst other benefits. Therefore I don't understand why A is the correct answer.

I would see it more of cyclical unemployment because the firm and the economy are possibly going through a period of cost-cutting.
indrayudha Can it be said that, it's structural since the landscape of the industry has changed (ie., fundamentally)?
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