Types of unemployment

  • Cyclical unemployment
    • Cyclical unemployment exists when individuals lose their jobs as a result of a downturn in aggregate demand (AD)
      • If the decline in aggregate demand is persistent, it is either called demand deficient, general, or Keynesian unemployment
    • When companies experience a reduction in the demand for their products or services, they respond by cutting back on their production, making it necessary to reduce their workforce within the organization. In effect, workers are laid off.
      • Example: Unemployment caused by the recession of 2008-2010
    • Cyclical unemployment is normally a shot-run phenomenon; and are subject to trade cycles
  • Structural unemployment
    • Structural unemployment occurs when certain industries decline because of long term changes in market conditions
    • Drastic changes in the economic structure, affect either the supply of a factor or demand for a factor of production
    • Structural employment is a natural outcome of economic development, technological advancement and innovation that are taking place rapidly all over the world in every sphere
    • For example, as old industries have declined, new industries have emerged, such as higher tech manufacture, IT, computing, insurance, and internet based companies. However, these new industries may require a different skill set to previous manufacturing jobs, and it is this that can cause structural unemployment
  • Classical unemployment
    • Classical unemployment is caused when wages are ‘too’ high.
    • This explanation of unemployment dominated economic theory before the 1930s, when workers themselves were blamed for not accepting lower wages, or for asking for too high a wage
    • Classical unemployment is also called real wage unemployment
  • Seasonal unemployment
    • Seasonal unemployment exists because certain industries only produce or distribute their products at certain times of the year.
    • Industries where seasonal unemployment is common include farming, tourism, and construction
    • Ex: Workers in a ski resort will become unemployed after winter ends, while tourist guides in a hill station in India are likely to lose work after summer when the influx of tourists is low
    • Other example could be in the agricultural sector where the demand for workers is more during harvesting than is required in other months in a year
  • Frictional unemployment
    • Frictional unemployment, also called search unemployment, occurs when workers lose their current job and are in the process of finding another one.
    • There may be little that can be done to reduce this type of unemployment, other than provide better information to reduce the search time.
    • This suggests that zero unemployment is impossible at any one time because some workers will always be in the process of changing jobs.
  • Voluntary unemployment
    • Voluntary unemployment is defined as a situation when workers choose not to work at the current equilibrium wage rate.
    • For one reason or another, workers may elect not to participate in the labour market
      • There are several reasons for the existence of voluntary unemployment including excessively generous welfare benefits and high rates of income tax
  • Disguised Unemployment
    • It is a situation in which more people are doing work than actually required
    • Even if some are withdrawn, production does not suffer. In other words it refers to a situation of employment with surplus manpower in which some workers have zero marginal productivity
    • Overcrowding in agriculture due to rapid growth of population and lack of alternative job opportunities may be cited as the main reasons for disguised unemployment in India
  • Educated Unemployment
    • Among the educated people, apart from open unemployment, many are underemployed because their qualification does not match the job
    • Shortfalls in education system, mass output, preference for white collar jobs, lack of employable skills and dwindling formal salaried jobs are mainly responsible for unemployment among educated youths in India
  • Technological Unemployment
    • It is the result of certain changes in the techniques of production which may not warrant much labour
    • Modern technology being capital intensive requires fewer labourers and contributes to this kind of unemployment
  • Casual Unemployment
    • When a person is employed on a day-to-day basis, casual unemployment may occur due to short-term contracts, shortage of raw materials, fall in demand, change of ownership etc.
  • Chronic Unemployment
    • If unemployment continues to be a long term feature of a country, it is called chronic unemployment.
    • Rapid growth of population and inadequate level of economic development on account of vicious circle of poverty are the main causes for chronic unemployment

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