What Are The Three Types of Unemployment?

A Look at Structural, Frictional, and Cyclical Unemployment

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Moffatt, Mike. "What Are The Three Types of Unemployment?" ThoughtCo, Mar. 27, 2017, thoughtco.com/the-three-types-of-unemployment-1148105. Moffatt, Mike. (2017, March 27). What Are The Three Types of Unemployment? Retrieved from https://www.thoughtco.com/the-three-types-of-unemployment-1148105 Moffatt, Mike. "What Are The Three Types of Unemployment?" ThoughtCo. https://www.thoughtco.com/the-three-types-of-unemployment-1148105 (accessed October 21, 2017).
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In the study of economics, unemployment is most simply defined as the state in which people are without work but are actively seeking employment. Unemployment is often used as a measure of the overall health of the economy. As such, it is a well-studied subject. Economists break unemployment down into three primary categories: structural, frictional, and cyclical. These categories encompass both involuntary unemployment and voluntary unemployment which can occur when a person is laid off, fired, or willingly leaves a job.

Below we will examine each of these three types of unemployment to see how they differ.

Structural Unemployment

The Glossary of Economics Terms defines structural unemployment as:

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

This classification is related to an imbalance or disparity in the jobs available and the workers seeking employment. Structural unemployment is affected by dynamic changes in the economy and generally requires unemployed workers to acquire new skills in order to procure a new job.  

There are two primary causes of such an absence of demand for workers in a particular industry:

  1. Changes in Technology: Changes in technology can render many job skills obsolete or, conversely, require new skills of the labor force in a particular industry. For example, as personal computers replaced typewriters, many typewriter factories shut down in response. Laid off workers originally employed by those defunct typewriter factories may experience structural unemployment as a result.
     
  1. Changes in Tastes: Changes in taste, trends, or simply the social needs of the economy can also have an effect on unemployment. For example, if bagpipes become unpopular and the demand for the instrument decreases significantly, bagpipe manufacturers would likely downsize or go bankrupt, leaving many, if not all, of their workers unemployed.

    Frictional Unemployment

    The Glossary of Economics Terms defines frictional unemployment as:

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

    Frictional unemployment is ever-present in the economy and is defined by what most economists consider temporary worker transitions. It is very much related to the natural turnover in the labor market and defines the unemployment that occurs during the time required for a worker to find a new job.

    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 employers due to quitting or being fired (for reasons beyond the causes that drive structural unemployment).
       
    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:

    "unemployment [that] occurs when the unemployment rate moves in the opposite direction of the GDP growth rate...when GDP growth is small (or negative) unemployment is high."

    The economy naturally experiences cycles of expansion and contraction or ups and downs.

    These cycles are closely tied to many economic factors, including unemployment rates. For instance, workers who experience unemployment due to a lay off as a result of a recession illustrate a classic case of cyclical unemployment. When a contraction or breakdown in the economy leads to an abundance of unemployed workers and a limited number of jobs, many of those workers experience cyclical unemployment. This type of unemployment and its strong relationship to the economic business cycle is one of the reasons the unemployment rate is a key economic indicator

    What About Seasonal Unemployment?

    Seasonal unemployment is not generally considered one of the primary types of unemployment in and of itself. Seasonal unemployment is unemployment that occurs due to changes in the seasonal need or when there is a limited need for a specific type of work during a particular time in the year.

    For example, a lack of demand for department store Santa Claus actors in January is a source of seasonal unemployment. This type of unemployment is typically classified as a form or subcategory of structural unemployment.