Unemployment is the macroeconomic obstacle that affects people badly. For most workers, the loss of a job determines the living standard and emotional suffering.
It is no wonder that unemployment is a top topic of most political debate and that lawmakers often declare that their purposed policies help to create jobs.
Let’s study different types of unemployment.
Types Of Unemployment
There are main 4 types of Unemployment is which includes:
01 Frictional Unemployment
Unemployment that results because it takes time for workers to find the jobs that best suit their skills and preferences is called Frictional Unemployment.
One reason for unemployment is that it takes time to match workers and jobs.
Not all workers and all jobs are same, neither all workers are well suited for all jobs.
In fact, workers have different preferences and expertise, and jobs have different attributes.
Some frictional unemployment is inevitable in a changing economy. For many reasons, the types of goods that firms and households demand vary over time.
The invention of the personal computer decreased the demand for typewriters. As a result, demand for labor by typewriter manufacturers.
At the same time, it increased the demand for labor in the electronics industry.
02 Cyclical Unemployment
Cyclical unemployment refers to the Unemployment caused by regular fluctuations in the economy correlated with the short-run ups and downs of economic activity, that occur within the business cycle.
When an economy is doing great, cyclical unemployment usually goes down, because the total economic output(GDP) is high and the demand for labour is higher as well.
One primary determinant of the demand for labor from firms shows they perceive the state of the macroeconomy.
If, firms believe that business is expanding, then at any given wage they will desire to hire a greater quantity of labor and the labor demand curve shifts to the right.
Conversely, if firms perceive that the economy is slowing down or entering a recession businesses will wish to hire a lower quantity of labor at any given wage, and the labor demand curve will shift to the left.
The shift in unemployment caused by the economy shifting from growth to a recession in the business cycle is known as cyclical unemployment.
When economic output or the business cycle is low the cyclical unemployment will increase.
Cyclical unemployment is the effect of businesses having less demand for workers to employ all those who are looking for jobs at within the business cycle.
Most business cycles are repetitive, with the downturn eventually turning to an upturn again, followed by another recession, recovery and so on.
03 Structural unemployment
Unemployment, when the number of jobs available in the economy is not enough to provide a job for every job seeker, is considered Structural unemployment.
Structural unemployment happens when the wages are above the level that brings supply and demand into stability.
Workers are jobless not because they are eagerly looking for jobs that best suit their expertise.
Instead, at the going wage, the supply of labor exceeds the demand. These workers are merely waiting for jobs to become available.
04 Seasonal unemployment
Seasonal unemployment happens when workers are unemployed at certain times of the year when demand for labor is lower than usual because they work in industries where they are not needed all year round.
Examples of industries where demand, production labor, and employment are seasonal include tourism and leisure, farming, construction and retailing.
For instances, the demand for woolen clothes will be more in winters as compare summer. So, the need for the capital resources and the workforce in the textile industry will be more during this period.
The seasonal unemployment is predictable as most of the times it is well known with certainty the period during which the demand for the goods changes.
Seasonal unemployment is a form of structural unemployment wherein the economic structure changes following the change in the season, and hence the demand for the workers varies accordingly.