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Types of Unemployment: Frictional, Cyclical and Structural Unemployment

Updated on March 28, 2013

In order to better understand the mechanism of an economy, economists and analysts divide unemployment into many different categories. This classification helps economists to formulate and refine better strategies to eradicate the rising level of unemployment. In this article, you will find all the different types of unemployment.

But before we move forward, let us take a look at the basic definition and explanation of the term unemployment.


Unemployment:

The failure of the economy to fully employ its labour force is called unemployment. In other words, unemployment is a state or condition in which a person, who is genuinely willing to work for money, is not being able to find a job.


Types of Unemployment:

Generally, we divide unemployment into 3 major types or classifications. These 3 types of unemployment are:


1. Frictional Unemployment

2. Cyclical Unemployment

3. Structural Unemployment


However, when we explore in more detail, more types of unemployment can be classified. All these types are defined below:


Voluntary and Involuntary Unemployment:

At the very basic level, we divide unemployment into two broadest categories: voluntary unemployment and involuntary unemployment. All the other types of unemployment (frictional, cyclical or structural) fall into either of these categories.


A. INVOLUNTARY UNEMPLOYMENT:

Following are the types of involuntary unemployment:


1. Frictional Unemployment:

Frictional unemployment arises from immobility in the labour force. Labour is not geographically or occupationally mobile, and hence remains unemployed despite the fact that there are job available. But these jobs are available either in the other parts of the country or requiring such skills that they do not have. Moreover, frictional unemployment is also often referred as search unemployment (which is defined below), because this type refers to the period of unemployment which is consumed in the process of finding a new job after quitting one.


Following are some sub-categories of frictional unemployment.


i. Search Unemployment:

This is a form of frictional unemployment. It occurs when people who are unemployed do not take the first job on offer but search for a better-paid employment.


ii. Casual Unemployment:

Casual unemployment means that there are certain groups of people who are out of work between periods of employment, e.g. actors, singers, painters, etc.


2. Cyclical Unemployment:

By cyclical unemployment, we mean unemployment that is caused by the business cycle, i.e. the deficiency of aggregate or total demand. As the overall level of business activity decreases, unemployment increases. Similarly, as business activity increases, unemployment declines.

Varied business cycles are an integral part of any economy. It is a fact that must be taken into account when you are estimating a level of unemployment. In order to effectively run an economy, the management needs near-perfect data regarding cyclical unemployment. This is because a 3-4% unemployment rate is considered healthy for the company. And therefore, the government does not do much effort about cyclical unemployment, if it foresees a shift in the business cycle in the near-future.


3. Structural Unemployment:

This unemployment results because the composition of the labour force does not respond immediately or completely to the new structure of job opportunities. Structural changes in the economy cause some workers to become unemployed permanently or for a very long period of time, because they cannot find jobs that they can do. Structural unemployment may be subdivided as follows:


i. Regional Unemployment:

If an industry, which is concentrated in one area and upon which most of the labours of a region are dependent for employment, shuts down, a great majority of the region’s labour force becomes unemployed. This is known as regional unemployment.

Or on the other hand, if an organization completely moves its setup to another place, region, city or country, the unemployment caused by this action will also be termed as regional unemployment.


ii. Technological Unemployment:

This arises from the introduction of new technology. For example, the increasing use of cashpoint and other plastic cards has reduced the number of bank clerks.


iii. International Unemployment:

This arises when workers lose their jobs due to a fall in demand for domestically produced goods.


4. Seasonal Unemployment:

Seasonal unemployment comes and goes with seasons of the year in which the demand for particular jobs rises and falls. There are many industries which go out of business at certain times/seasons in a year. Industries such as farming and tourism are affected in this way. A vendor selling ice-creams or a person impersonating Santa Clause are other examples.


5. Hidden Unemployment:

Whatever the published figures for unemployment, there are bound to be people who are interested in taking paid work but who, for one reason or another, are not classified as unemployed. It is more of an estimate that economists keep in times of formulating strategies.


B. VOLUNTARY UNEMPLOYMENT:

The other broadest classification of unemployment is voluntary unemployment. As we have seen that all the discussed types of unemployment fall in the category of involuntary unemployment, voluntary unemployment is a complete opposite of that. When a person is not willing to work for wages, he will be called as voluntary unemployed, e.g. housewives, etc.

Summary:

So this sums up all the different types of unemployment. We can summarise the entire topic in the following lines:

  • Unemployment is the inability of the economy to fully employ its labor force.
  • There are many different types of unemployment, which economists and analysts classify and use to formulate strategies.
  • At the most basic level, there are two classifications of unemployment: Involuntary Unemployment and Voluntary Unemployment.
  • More commonly, we discuss the following three 3 types of unemployment: Frictional Unemployment, Cyclical Unemployment and Structural Unemployment.
  • Apart from Frictional, Cyclical and Structural unemployment, Hidden unemployment and Seasonal unemployment are some of the other kinds of unemployment.
  • All these types of unemployment fall in the category of involuntary unemployment.


Related Articles on Unemployment:


There are several costs of unemployment for an economy. This article not only includes the costs of unemployment to the unemployed, but it also discusses about the social costs of unemployment, fiscal costs of unemployment and costs of unemployment to the economy.


High unemployment rate can be very dangerous for the economy. However, there are certain policies to reduce unemployment, which can be effective in case of high unemployment. Learn about all those policies to reduce unemployment here.

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      sakina khan 

      4 years ago

      This is very useful.Got a prompt response.Really impressive.

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