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Types of Unemployment: Frictional, Structural, Cyclical
In economics, unemployment occurs when people are without work while actively searching for employment . The unemployment rate is a percentage, and calculated by dividing the number of unemployed individuals by the number of all currently employed individuals in the labor force. The causes, consequences, and solutions vary based on the specific type of unemployment that is present within a country.
This graph shows the average duration of unemployment in the United States from 1950-2010. Unemployment occurs when there are more individuals seeking jobs than there are vacancies.
Structural unemployment is one of the main types of unemployment within an economic system. It focuses on the structural problems within an economy and inefficiencies in labor markets. Structural unemployment occurs when a labor market is not able to provide jobs for everyone who is seeking employment. There is a mismatch between the skills of the unemployed workers and the skills needed for the jobs that are available. It is often impacted by persistent cyclical unemployment. For example, when an economy experiences long-term unemployment individuals become frustrated and their skills become obsolete. As a result, when the economy recovers they may not fit the requirements of new jobs due to their inactivity .
When there is structural unemployment, workers may seek to learn different skills so that they can apply to new types of jobs.
Frictional unemployment is another type of unemployment within an economy. It is the time period between jobs when a worker is searching for or transitioning from one job to another. Frictional unemployment is always present to some degree in an economy. It occurs when there is a mismatch between the workers and jobs. The mismatch can be related to skills, payment, work time, location, seasonal industries, attitude, taste, and other factors. Frictional unemployment is influenced by voluntary decisions to work based on each individual's valuation of their own work and how that compares to current wage rates as well as the time and effort required to find a job.
Cyclical unemployment is a type of unemployment that occurs when there is not enough aggregatedemand in the economy to provide jobs for everyone who wants to work. In an economy, demand for most goods falls, less production is needed, and less workers are needed. With cyclical unemployment the number of unemployed workers is greater that the number of job vacancies.
The Natural Unemployment Rate
The natural unemployment rate, sometimes called the structural unemployment rate, was developed by Friedman and Phelps in the 1960s. It represents the hypothetical unemployment rate that is consistent with aggregate production being at a long-run level. The natural rate of unemployment is a combination of structural and frictional unemployment. It is present in an efficient and expanding economy when labor and resource markets are at equilibrium. The natural unemployment rate occurs within an economy when disturbances are not present.
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people are permanently unemployed; people are temporarily unemployed, people are temporarily unemployed; the unemployment rate is consistent with aggregate production, None of these answers, and there is a mismatch between job requirements and employee skills; workers are temporarily unemployed