External environment illustration External environment theory


Unemployment is typically associated with labour i.e. employees who make themselves available for employment not being able to find work. However, it can also be applied to other factors of production such as capital e.g. machinery.

Unemployment varies with the level of economic activity. In early 2004 employment in the UK was high, so that unemployment figures were low - about 4.5 with employers reporting skill shortages in a number of areas and trades.

There are many explanations of how unemployment is caused. One cause of unemployment may be downswings in the trade cycle, i.e. periods of recession.

Another explanation of wide-scale unemployment refers to structural employment. Structural unemployment arises from longer-term changes in the economy, affecting specific industries, regions and occupations. Structural unemployment often explains regional unemployment. Some regions of the UK such as Central Scotland, and the North-West have higher rates of unemployment because the traditional heavy industries which located there have gone into decline as they are replaced by cheaper imports from abroad. The new high-tech industries based on new technologies tend to be based in the South-East and along particular growth corridors.

Other people argue that new technology is a cause of unemployment i.e. technological unemployment. The argument is that the introduction of new technology is destroying jobs and trade while at the same time imports from low-wage developing countries are undercutting goods produced in this country.

However, a number of studies contradict this. New technology generates new products, new services and therefore new jobs. Fewer workers may be required in some production processes where specific tasks are taken over, but rising productivity boosts incomes and the demand for new jobs in the economy as a whole.

There are thus considerable differences in opinions about the causes of unemployment.

Supporting Documents

These downloads will help to put external-environment theory into context using real world examples from real businesses.

The use of social media in promotion
National Trust logo

Find out how National Trust used external-environment theory to thrive in the non-profit industry by downloading our premium case study.

Meeting customers' needs
Travis Perkins logo

Learn how Travis Perkins applied external-environment theory to thrive in the construction industry by downloading our premium case study.

Using the marketing mix in the fashion industry
Ben Sherman logo

Learn how Ben Sherman employed external-environment theory to prosper in the fashion industry by downloading our premium case study.

Protecting the marketing mix through intellectual property rights
Intellectual Property Office logo

Find out how Intellectual Property Office employed external-environment theory to succeed in the public sector industry by downloading our premium case study.

Live, breathe and wear passion
Diesel logo

Learn how Diesel applied external-environment theory to prosper in the fashion industry by downloading our premium case study.


Subscribe to our newsletter for current business news including lesson plans and activity ideas.

Share this website