Definition: Unemployment can be categorized according to what causes it. In other words, there are some classifications depending on the reason why the unemployment situation was originated.
Types of Unemployment Explained
There are three fundamental types of unemployment, which are, cyclical, frictional and structural unemployment. Some economists have developed some other classifications but most of them can be taken as sub-classifications of these main three.
Cyclical Unemployment – Let’s start with cyclical unemployment, stemming from recessions and valleys experienced as part of the regular economic cycle. Economies have their ups and downs periodically and this is defined as a cycle. When the economy is having a down trend, unemployment rates tend to increase because of a slowdown in the overall economic activity.
Frictional Unemployment – Next we have, frictional unemployment, caused by regular transitions from one job to the other. Since there’s a normal waiting period between leaving one job and getting a new one, this produces a temporary unemployment that will be eliminated when the candidate lands a new job opportunity.
Structural Unemployment – Finally, we have structural unemployment, caused by a disparity between the skills required by the labor market and the skills possessed by the individuals. There are many different causes for structural unemployment but the main ones are technological improvements that transition the position to a virtual system, therefore, suppressing the need for a human operator.
Let’s take a look at a practical illustration of one of these types of unemployment.
Mr. Parks is a press operator hired by a company that manufactures plastic containers. As part of the company efforts to increase profitability, Mr. Park and many others’s jobs were replaced by a computer system that operates all the company presses through an automated process. Which kind of unemployment is this?
According to the concepts we previously discussed, a situation of structural unemployment seems to be happening here. Since this new technology made Mr. Parks skills to mismatch the requirements of the company Mr. Parks was laid off, creating a temporary unemployment situation for him and his co-workers, until they find another job that matches their skills.