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What Are The Three Types of Unemployment?


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Unemployment - The Three Types:

Economists break unemployment down into three distinct varieties - Structural, Frictional, and Seasonal. Below we will examine each type of unemployment to see how they differ.

Structural Unemployment:

The Glossary of Economics Terms defines structural unemployment as:

"Structural unemployment is a unemployment that comes from there being an absence of demand for the workers that are available."

There are two major reasons that cause an absence of demand for workers in a particular industry:
  1. Changes in Technology: As personal computers replaced typewriters, typewriter factories shut down. Workers in typewriter factories because unemployed and had to find other industies to be employed in.

  2. Changes in Tastes: If bagpipes become unpopular, bagpipe companies will go bankrupt and their workers will be unemployed.

Frictional Unemployment:

The Glossary of Economics Terms defines frictional unemployment as:

"Frictional unemployment is unemployment that comes from people moving between jobs, careers, and locations."

Sources of frictional unemployment include the following:
  1. People entering the workforce from school.

  2. People re-entering the workforce after raising children.

  3. People changing unemployers due to quitting or being fired (for reasons beyond structural ones).

  4. People changing careers due to changing interests.

  5. People moving to a new city (for non-structural reasons) and being unemployed when they arrive.

Cyclical Unemployment:

The Glossary of Economics Terms defines cyclical unemployment as:

"Cyclical unemployment occurs when the unemployment rate moves in the opposite direction as the GDP growth rate. So when GDP growth is small (or negative) unemployment is high."

Getting laid off due to a recession is the classic case of cyclical unemployment. This is why the unemployment rate is a key economic indicator

What About Seasonal Unemployment?:

Seasonal unemployment is unemployment due to changes in the season - such as a lack of demand for department store Santa Clauses in January. Seasonal unemployment is a form of structural unemployment, as the structure of the economy changes from month to month.

Have any questions about unemployment? Please leave them at this blog post.