Types of Unemployment
The types of unemployment are classified based on their causes and effects. Towards this end, four types of unemployment are discussed below:
Frictional unemployment. This refers to the period when an individual is switching jobs, or is between one job and another. Frictional unemployment happens due to a discrepancy between jobs and the workers based on such issues as taste and preferences, skills set, attitude, and payment, among others (García and Sorolla 8). One of the main contributors to frictional unemployment is an individual’s voluntary decision to quit a certain job before finding a new job, depending on the value attached to it in comparison with the current wage rates, effort and time needed to find such a job.
Structural unemployment. This type of unemployment is concerned with the inefficiencies that characterize a labor market, along with the structural problems that bedevil the economy. When the labor market fails to deliver enough jobs for all individuals in search of employment, this triggers structural unemployment (The Economist n.p.). This could happen because the skills possessed by the unemployed workers do not match the skills required to do the available jobs. Ongoing cyclical unemployment is likely to trigger structural unemployment. For instance, prolonged unemployment rates in the economy could end up frustrating those in search of jobs and they fail to update their skill. Consequently, their skills become obsolescent.
Cyclical unemployment. This type of unemployment occurs because the economy lacks sufficient aggregate demand for jobs to all in need of work (The Economist n.p.). This is likely to happen in an economy that is experiencing a decline in demand for goods, meaning that there is a decline in the level of production required and by extension, the number of workers needed to produce goods.
Seasonal unemployment. This type of unemployment happens when people are out of work at certain times of the year, such as when school closes, or during off-season (The Economist n.p.) in the case of industries like the tourism sector.
The Natural Rate of Unemployment
The Natural Rate of Unemployment refers to the rate of unemployment in the economy when the labor market is in a state of equilibrium. In other words, it is that level at which the rate of unemployment in the economy is expected to remain regardless of the considerable impact of monetary policy. The natural rate of unemployment is mainly influenced by supply side factors more than by the demand side factors (McGinty n.p.). It is therefore a cumulative effect of structural unemployment and frictional unemployment. Several factors such as the availability of information about a job, the quality of education and training of the workers, the level of occupational mobility, and the level of labor mobility and how flexible the labor market is influence the natural rate of unemployment.
Inclusions and Exclusions in the National Unemployment Rates
The national unemployment rate refers to the percentage of workers in the labor force who are without work. The national unemployment rate is calculated by conducting surveys to collect information about workers’ employment, earnings and hours (McGinty n.p.). People who are in school full-time, those working in homes, the retired, or the disabled are often excluded from the labor force while calculating the national unemployment rate. On the other hand, individuals who claim to be actively searching for jobs are regarded as unemployed.
García, José G and Sorolla, Valeri. Frictional and Non-Frictional Unemployment in Models with
Matching Frictions. April 2013. Accessed 20 June 2017.
McGinty, Craven. What the Unemployment Rate Shows. March 4, 2016. Accessed 20 June 2017.
The Economist. The three types of unemployment. 18, Aug. 2014. Accessed 20 June 2017.
Some people may be in school full-time, working in the home, disabled, or retired. These people are not considered part of the labor force and are therefore not included in the unemployment rate. Only those people actively looking for a job or waiting to return to a job are considered unemployed