3 Types of Unemployment and What They Mean

3 Types of Unemployment and What They Mean April 26, 2011

There are three basic types of unemployment: frictional, structural, and cyclical.  Before each is explored, it’s important to understand where the unemployment figures are derived from.

Measuring Unemployment

The labor force is comprised of three categories: employed persons, unemployed persons, and those not in the labor force at all.

Employed – An employed person is anyone surveyed by the Department of Labor who has held a job in the week prior to their interview or has a job but is absent (sick, vacation, or on strike).

Unemployed – An unemployed person has not worked in the previous week, but has made an attempt to find a job in the last month.  This category also includes someone who is laid off or is waiting to report to a new job in the next 30 days.

Not in the labor force – Anyone not in the two categories above.  This includes students, non-working spouses, or people who have stopped looking for work altogether.

Types of Unemployment

Frictional Unemployment – This type of unemployment happens because of ‘normal’ workings of an economy.  When a person quits to find a better job or when they’re fired and look for a more suitable job, this is called frictional unemployment.  It can also happen if consumers shift their demand towards a new product, thus eliminating the need for so many workers in a field.  The same is true if technology improves and makes the skills of some workers unnecessary.

Structural Unemployment – As it sounds, this type is caused by significant changes in the structure of an industry.  Substantial changes in industry, location, or even seasonal changes can cause structural unemployment.  Generally these changes force workers out of a job because the cost to relocate or adjust is simply too much.

Cyclical Unemployment – Downturns in the economy generally account for cyclical unemployment.  When the number of unemployed workers exceeds the number of job positions available in an economy, that’s usually a sign of cyclical unemployment.  The Keynesian approach to reducing this type of unemployment is to pump money into an economy via government stimulus.  The Austrian or free-market view is to let the markets work efficiently and keep the government from intervening and potentially slowing down the recovery.

The current stats on unemployment can be found at the Bureau of Labor Statistics website. The unemployment rate as of March 2011 was 8.8%.  This is slightly lower than the average rate of 9.6% held in 2010.

Now when you hear the stats, you can have a better understanding of where they come from and what’s included (and not included) in the figures.

Do you have any questions about unemployment that you’d like to see covered in a future economics article?  Email us or leave a comment!

image credit: bgottsab

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