Types of unemployment

Economy and Finance

Types of unemployment

27 Aug 2023 Zinkpot 147

Cyclical unemployment is unemployment that is caused due to the current state of an economy at any given time. It is caused by changes in business cycles i.e. economic upturn or downturn.
This kind of unemployment is highest during the economic recession and is lowest during economic expansion.
Cyclical unemployment is one of the components that determine the overall unemployment in an economy, along with other components like structural unemployment, seasonal unemployment, friction, and institutional unemployment.
Cyclical unemployment is caused by a deficiency in aggregate demand. During depression, income falls and this lowers the demand for goods and services.
As a result, aggregate demand is not sufficient to purchase the entire output that can be produced with full employment of the labor force. Therefore, production will be less than full employment output. Consequently, a large number of the labor force will remain unemployed.
Since cyclical unemployment arises due to a deficiency of aggregate spending, it can be eliminated by raising aggregate demand sufficiently so as to increase output to the level which can be produced with full utilization of labor.
Frictional unemployment is a type of unemployment that is caused by individuals being fired, laid off, or seeking alternative employment in the marketplace.
Another reason can be transitioning from one job to another, where the time between leaving an old job and starting a new one causes people to be temporarily unemployed.
This type of unemployment is generally of shorter term and is likely to occur at all points of the business cycle and may not influence wages or inflation.
Structural unemployment is unemployment that occurs because of an absence of demand for a certain type of worker. This typically happens when there are mismatches between the skills employers want and the skills workers have.
Major advances in technology, as well as finding lower costs of labor overseas lead to this type of unemployment. When workers lose jobs because their skills are obsolete, or because their jobs are transferred to other countries, they are structurally unemployed.
It’s structural unemployment because the structure of the economy has changed, not because of the regular ups and downs of it.
For example, there has been a noticeable decline in the share of people employed in routine manual jobs over recent decades, with some of these jobs being automated because of the advances in technology.
Structural unemployment tends to be longer lasting than other types of unemployment. This is because it can take a few years for workers to develop new skills or move to a different region to find a job that matches their skills.
In contrast to cyclical unemployment, structural unemployment exists even when economic conditions are good. In theory, this type of unemployment should not directly influence wages or inflation.