Types of Unemployment

In an economy, there are different types of unemployment and they come about due to several factors. This article explains the causes of unemployment and how they result in different types of unemployment and their negative effects on an economy.

What is unemployment in economics?

Unemployment in economics refers to a situation whereby people that are employable and actively in search of a job are unable to find any. This group can include those people in the workforce who are working but do not have a job that is appropriate. In other words, when workers want to work but are unable to work, unemployment is in place. People often refer to unemployment as joblessness.

Though the concept is ambiguous in nature, we can use it in relation to any factor of production that is idle and not being utilized for production. Making reference to labor, unemployment is in place if it becomes impossible to find jobs for those who are able and eligible to work. In other words, unemployment of labor occurs in an economy when there are people who are capable of working, who are qualified by age, law, education, and other criteria but are unable to find employment.

The degree of unemployment varies across countries and over a period of time. For instance, there is a high rate of unemployment in developing countries where many people in the working class cannot find a job for themselves. It is a vital economic indicator as it shows the sign of the ability or inability of workers to have access to gainful work to contribute to the productive output of the economy.

Unemployment is measurable by the unemployment rate which is dividing the number of unemployed people by the total number of people in the workforce. Unemployment is a vital instrument that indicates the economic status of a country.

Types of unemployment

There are four major types of unemployment which are;

  • Structural unemployment
  • Frictional unemployment
  • Voluntary unemployment
  • Demand deficient or cyclical unemployment

Others include;

  • Regional unemployment
  • Classical unemployment
  • Seasonal unemployment
  • Causal unemployment
  • Residual unemployment
  • Disguised unemployment
  • Chronic unemployment
  • Institutional unemployment

Structural unemployment

Structural unemployment occurs when the workers’ set of skills does not correlate with the demand by available jobs. It also implies when workers are available but are not able to reach the geographical locations of the jobs. For instance, a potential employee is to travel abroad to secure a job but was faced with visa restrictions. Also, technological development such as workflow automation can displace the need for human labor.

Frictional unemployment

Another name for frictional unemployment is search unemployment. It is a situation whereby workers lose their current job and are in the process of finding another one. That is, the workers are in between jobs. A typical example is a worker who was recently fired or quit and is in search of a job in an economy that is not experiencing a recession. This is usually not healthy because it usually results from a worker trying to find a job that is most suitable for his skills. It is inevitable as some workers will always be in the process of switching between jobs.

Voluntary unemployment

This is a situation where a worker decides to because it is no longer financially compelling. This is most common when a worker’s pay is less than his cost of living. In other words, cyclical unemployment occurs when workers decide not to work at the current equilibrium wage rate. Another case is when a worker may decide not to participate in the labor market for certain reasons. Several reasons for voluntary unemployment include welfare benefits that are excessively generous and high rates of income tax. This is also likely to occur when the equilibrium wage rate is less than the wage necessary to encourage individuals to supply their labor. A worker can choose to remain unemployed until he finds a better job.

Cyclical unemployment

Cyclical unemployment, also known as demand deficit unemployment usually happens during a recession. When companies experience a decrease in the demand for their goods and services. In this case, they respond by cutting down their production thereby calling for the need to reduce their workforce within the organization. The effect of this is that workers are laid off. In periods of recession, this happens to be the greatest cause of unemployment. In simple terms, this situation occurs when there is a lack of aggregate demand with insufficient demand to generate full employment. This is also common when the economy is below full capacity.

Regional unemployment

Regional unemployment is a situation whereby structural unemployment affects local areas of an economy.

Classical unemployment

This situation comes about when wages are too high. Before the 1930s, this explanation dominated economic theory. This was when workers were faulted for not accepting lower wages or requesting too high wages. This is also known as real wage unemployment.

Seasonal unemployment

Seasonal unemployment comes about when certain industries only produce or distribute their products in certain periods of time. That is, their production is usually subject to seasonal variations. In this case, there are certain seasons that are suitable for production while other seasons are not suitable. This implies that production levels change from one season or period to another. There are certain seasons of production whereby less labor is required. In turn, this will render some workers unemployed. This type of unemployment is peculiar to industries like the agricultural sector, tourism, and construction companies.

Causal unemployment

This situation is peculiar to jobs that are unsettled in nature or temporary jobs. This greatly has to do with unskilled labor. For instance, a firm may employ labor on a part-time basis during festivals and occasions. After that, the labor may be laid off.

Residual unemployment

This is a type of unemployment that includes all individuals who are unable to work as a result of physical and mental disabilities. Many people are handicapped and are incapable to work as a result.

Disguised unemployment

Disguised unemployment is a situation whereby employed labor in a job is being mismanaged in the course of carrying out the production of goods and services. Another name for disguised unemployment is hidden unemployment. This implies that the employment of labor inputs does not contribute to the economic output thereby making it constitute the unemployment rate in an economy. This can sometimes be a form of underemployment where there is no full utilization of labor force skills. In some other instances, this form of unemployment can result from the lack of other production avenues where employers can employ the surplus labor in a profitable manner.

Chronic unemployment

Chronic unemployment occurs in a situation whereby unemployment in an economy tends to be long-term. Most times, developing countries or underdeveloped countries fall victims of chronic unemployment because of the presence of vicious poverty circle. Usually, this happens due to various factors such as overpopulation/rapid population growth, deficiency of developed resources, underutilization of resources, technological underdevelopment/primitive state of technology, poor capital formation, and many others. These factors constitute to the causes of chronic unemployment in underdeveloped countries and economies.

Institutional unemployment

Institutional unemployment results from the interferences with free-market conditions in replacement of the voluntary decisions of the people that are unemployed. These intereferences emcompass every attempt to raise wage rates above the flexible rates which tends to make adjustments in the supply of every labor type to the demand for it. These interferences come about as a result of what we call pro-labor legislation. It can as well result from the activities of customs and unions, or the fear of violence.

Unemployment causes

Unemployment results from many factors that come from both the demand side and the supply side. The causes of unemployment are;

  • Occupational immobilities
  • Geographical immobilities
  • Technological change
  • Government failure
  • Voluntary decisions
  • Recession
  • Physical and mental disabilities
  • Corruption and favoritism

Occupational immobilities

This comes about as a result of the difficulties in learning new skills that are applicable to a new industry and technological change. For example, an unemployed farmer may face struggles in finding jobs in highly technical industries.

Geographical immobilities

Geographical immobilities can amount to unemployment. This is a situation whereby it is difficult for a worker to move from one geographical area to another to get a job. For example, a job is located in another state or abroad but it will be difficult to find suitable accommodation. Another aspect of geographical immobility is the issue of distance or denial of visas.

Technological change

An improvement in technology that facilitates automation can result in loss or the absence of employment. In this case, there will be less demand for certain types of labor because machines and robots have replaced them. This will however cause some employees to lose their jobs.

Government failure

Modern economists tend to look at structural unemployment as a result of government failure. Labor markets are not clear because wages are not allowed to adjust effectively which brings about a distortion in the price mechanism. The removal of distortions and imperfections in the labor market would make workers move more quickly from one job to another.

Voluntary decisions

This is a situation whereby a worker decides to remain unemployed. This is usually for certain reasons such as one looking forward to a better job.

Recession

Recession usually causes companies to experience a decrease in the demand for their goods and services. This is because of the decreasing purchasing power of consumers. In this case, they respond by cutting down their production thereby calling for the need to reduce their workforce within the organization. The effect of this is that workers are laid off. In periods of recession, demand deficits happen to be the greatest cause of unemployment.

Physical and mental disabilities

To some individuals, their own state of unemployment came as a result of physical and mental disabilities which in turn makes them incapable to work.

Corruption and favoritism

This is a situation whereby, certain individuals decide to offer job opportunities to their family, friends, and close relatives even when they are unqualified. It deprives qualified applicants of having access to job opportunities. This is one of the reasons why we see many qualified and skillful individuals unemployed while the unqualified and unskillful individuals get the job. In some cases, employers will ask applicants to buy the job opportunities or fulfill some other unethical conditions.

Consequences of unemployment

We will look at the effects of unemployment in three areas;

  • Effects on the individual
  • Effects on society
  • On the economy

A) Effects on the individual

Reduced income

Experiencing reduced income is a direct result of not having a job because a job provides wages for the worker. When one loses his employment, the wages cease thereby leaving him with less income available. If such a person does not have other sources of income, he may rely on his savings or borrowed money to fund some essential costs such as food, clothing, and shelter. Primary workers in the family face more difficulties as they must come up with the fund to account for the needs of their family members rather than themselves alone.

Health problems

Being unemployed has a significant impact on an individual’s physical health. It is a situation that is highly stressful thereby causing stress-related health challenges such as hypertension, headaches, insomnia, and palpitations. This situation however results in increased visits to a doctor as well as the use of medication to manage health conditions.

So many people are dependent on their jobs to provide health insurance. In this case, they are bound to lose that access to healthcare the moment they become unemployed. Therefore, increased risks of further health decline will result as they will have to skip health-related appointments to reduce costs.

Mental health challenges

Research has proven that unemployment increases the risk of depression and anxiety. In other words, unemployed individuals usually experience a decrease in mental health compared to those who are employed. Their mental health is usually poor. Also, another challenge that is associated with the problem of unemployment is low self-esteem, psychosomatic symptoms, and reduced subjective wellbeing.

B) Effects on society

Poverty

In society, high unemployment rates amount to a higher rate of poverty and poorer neighborhoods. Communities with higher unemployment rates are more likely to have limited employment opportunities, low-quality housing schemes, limited access to public transportation, etc. In essence, this situation brings about a decline in the standard of living in society, raising the cost of living.

Social problems

There is a common saying that “an idle man is the devil’s workshop”. Therefore, being unemployed amounts to social problems and social vices. Because of the absence of jobs, some people constitute themselves as a nuisance, engaging in robbery, kidnapping, drug trafficking, prostitution, cyber crimes, etc.

C) Effects on the economy

Decrease in or loss of potential output

Because of the number of unemployed persons, the contribution they would have made to the total output will be lost thereby amounting to a decrease in the total volume of production. Also, people that are unemployed spend less money. In turn, this amounts to a lesser contribution to the economy with regard to the goods and services produced and sold. In the long run, this may affect an economy’s gross domestic product. Also, individuals that are unemployed consume less than those who are employed. When the rate of unemployment is high, the economy can be lacking in terms of the products sold thereby leaving organizations with decreased revenue. This has negative effects on the growth of an economy.

Waste of resources

Because of the fact that trained workers cannot find jobs that will engage them, the resources that trainers used in training them will then become a waste. These resources would have been useful in a more profitable venture.

Frequently asked questions

What do you mean by unemployment?

Unemployment in economics refers to the people that are employable and actively in search of a job but are unable to find any. This group can include those people in the workforce who are working but do not have an appropriate job. In other words, when workers want to work but are unable to work, unemployment is in place. People often refer to unemployment as joblessness.

What are unemployment and its types?

Unemployment is the total number of people that are employable and actively in search of a job but are unable to find any. This includes those people in the workforce who are working but do not have an appropriate job. The types of unemployment include;

  • Structural unemployment
  • Frictional unemployment
  • Voluntary unemployment
  • Cyclical unemployment
  • Regional unemployment
  • Classical unemployment
  • Seasonal unemployment
  • Causal unemployment
  • Residual unemployment
  • Disguised unemployment
  • Chronic unemployment
  • Institutional unemployment

A brief explanation of the types of unemployment

  1. Structural unemployment occurs when the workers’ set of skills does not correlate with the demand by available jobs.
  2. Frictional is a situation whereby workers lose their current job and are in the process of finding another one.
  3. Voluntary unemployment is a situation where a worker decides to remain unemployed because it is no longer financially compelling.
  4. Cyclical unemployment occurs when companies experience a decrease in the demand for their goods and services. In this case, they respond by cutting down their production thereby calling for the need to reduce their workforce within the organization.
  5. Regional unemployment is a situation whereby structural unemployment affects local areas of an economy.
  6. Classical unemployment is a situation that comes about when wages are too high.
  7. Seasonal unemployment results when certain industries only produce or distribute their products in certain periods of time. Here, their production is usually subject to seasonal variations. The agricultural sector is a typical example.
  8. Causal unemployment is peculiar to jobs that are unsettled in nature or temporary jobs. This greatly has to do with unskilled labor. For instance, a firm may employ labor on a part-time basis during festivals and occasions. After that, the organization may lay off the job.
  9. Residual includes all individuals who are unable to work as a result of physical and mental disabilities.
  10. Disguised unemployment is a situation whereby there is a mismanagement of labor in carrying out production activities.
  11. Chronic unemployment occurs in a situation whereby unemployment in an economy tends to be long-term and this is usually common with developing countries.
  12. Institutional unemployment results from the interferences with free-market conditions in replacement of the voluntary decisions of the people that are unemployed.

What are the 6 types of unemployment?

The sic types of unemployment include;

  • Structural unemployment
  • Frictional unemployment
  • Voluntary unemployment
  • Demand deficient or cyclical unemployment
  • Regional unemployment
  • Classical unemployment

What are the 4 types of unemployment and give examples?

The four major types of unemployment include;

  • Structural unemployment, for example, industry shifts, technology obsolences, and seasonal unemployment.
  • Frictional unemployment, for example, a science laboratory technique graduate who is in search of a job where job opportunities are only available for surgeons.
  • Voluntary unemployment, for example, a worker decides to quit his job, hoping to get a job with better pay.
  • Demand deficient or cyclical unemployment. An example of this is the lay-off of construction workers during the economic recession and the COVID-19 pandemic.

What are the 8 types of unemployment?

The eight types of unemployment include;

  • Structural unemployment
  • Frictional unemployment
  • Voluntary unemployment
  • Cyclical unemployment
  • Regional unemployment
  • Classical unemployment
  • Seasonal unemployment
  • Causal unemployment

What are the 5 types of unemployment?

The five types of unemployment include;

  • Structural
  • Frictional
  • Voluntary
  • Cyclical
  • Regional

What are the 3 causes of unemployment?

The causes of unemployment include the following;

  • When there are difficulties in learning new skills that are applicable to a new industry and technological change.
  • Another causative factor is the issue of geographical immobilities. This happens when it is difficult for a worker to move from one geographical location to another.
  • An improvement in technology where automation takes over, that is, the demand for labor will decrease. When machines and robots replace individuals, some employees will lose their jobs.
  • Some economists believe that distortions in the labor market price mechanisms make it difficult for workers to move more quickly from one job to another.
  • A worker can decide to remain unemployed for certain reasons such as looking for a better job.
  • Mental and physical disabilities can amount to unemployment because the disabled are incapable to work.
  • Corruption and favoritism are other factors that render some people unemployed. Here, those in charge can decide to offer job opportunities to their family, friends, and close relatives even when they are unqualified.

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