Types of Unemployment

The unemployment rate is determined by three different types of unemployment: frictional, structural, and cyclical. Understanding these conceptual categories of unemployment aids in understanding and formulating policies to ease the burden of unemployment. In fact, each type of unemployment requires a different policy prescription to reduce it.

For some unemployed workers, the absence of a job is only temporary. At any given time, some people with marketable skills are fired, and others voluntarily quit jobs to accept or look for new ones. And there are always young people who leave school and search for their first job. Workers in industries, such as construction, experiencing short periods of unemployment between projects and temporary layoffs are common. Other workers are seasonally unemployed, they are considered to be “between jobs”. This type of unemployment is called frictional unemployment, and it is not of great concern. Much or most of frictional unemployment is voluntary, since it reflects individual search behavior.

The fact that job market information is imperfect influences frictional unemployment in the economy. Because it takes time to search for the information required to match employer and employees, some workers will always be frictionally unemployed. Frictional unemployment is therefore a normal condition in an economic system permitting freedom of job choice. Improved methods of distributing job information through job listings on the Internet can help unemployed workers find jobs more quickly and reduce frictional unemployment.

Unlike frictional unemployment, structural unemployment is not a short-term situation. Instead, it is long-term, or possibly permanent unemployment resulting from the non-existence of jobs for unemployed workers. Structural unemployment is unemployment caused by a mismatch of the skills of workers out of work and the skills required for existing job opportunities. Changes in the structure of the economy create the following three causes of structural unemployment.

First, workers might face joblessness because they lack the education or the job-related skills to perform available jobs. Second, a shift in demand for goods and services may force workers to look for jobs in another industry or in another location. Third, implementation of the latest technology may also increase the pool of structural unemployment in a particular industry and region.

Structurally unemployed workers require additional education or retraining, and improvement is possible only in the long run.

Cyclical unemployment is unemployment caused by the lack of jobs during a recession. When real GDP falls, companies close, jobs disappear, and workers scramble for fewer available jobs. Keynesian economists see it as possibly being solved by government deficit spending or by expansionary monetary policy.

Because both frictional and structural unemployment are present in good and bad times, full employment does not mean “zero percent unemployment.” Full employment is the situation in which an economy operates at an unemployment rate equal to the sum of the frictional and structural unemployment rates. Full employment therefore is the rate of unemployment that exists without cyclical unemployment.

Ex. 1. Choose the right answer according to the text and your background knowledge. Explain your choice.

1. The number of people officially unemployed is not the same as the number of people who can’t find a job because:

a. people who have jobs continue to look for better ones;

b. the armed forces is included;

c. discouraged workers are not counted;

d. none of the above;

e. all of the above.

2. Frictional unemployment refers to:

a. unemployment related to thee ups and downs of the business cycle;

b. workers who are between jobs;

c. people who spend relatively long periods out of work;

d. people who are out work and have no job skills.

3. A mismatch of the skills of unemployed workers and the skills required for existing jobs is defined as:

a. involuntary unemployment;

b. cyclical unemployment;

c. structural unemployment;

d. frictional unemployment.

4. Unemployment caused by a recession is called:

a. structural unemployment;

b. frictional unemployment;

c. involuntary unemployment;

d. cyclical unemployment.

5. Full employment occurs when the rate of unemployment consist of:

a. seasonal plus structural plus frictional unemployment;

b. cyclical plus frictional unemployment;

c. structural, frictional, and cyclical unemployment;

d. none of the above.

Ex. 2. Scan the text and say:

a) why frictional unemployment is considered to be persistent;

b) what changes in the economy create structural unemployment;

c) what is meant by cyclical unemployment;

d) what can be done to eliminate frictional, structural, cyclical unemployment;

e) what is the goal of full employment;

Ex. 3. Present the situation in the job market in your country regarding different types of unemployment.