What are the Five Types of Unemployment?

People become unemployed for many different reasons. The reasons are often grouped into different forms of unemployment. You may see some variation on these particular categories, but, usually, you could fit unemployment into one of these categories, or you may see some of the categories lumped together into one bigger category. First, let’s look at frictional.

Frictional Unemployment

Frictional unemployment is when workers change jobs and are unemployed while waiting for a new job. A worker may already have a job lined up, but they may not be able to start for a few months. If they’re unemployed for those few months, it’s just a little friction between one job ending and one beginning. It’s not long-term unemployment. Maybe a worker is leaving a job, but they know they can get another one very easily. Say, a high school kid who is leaving a job at McDonald’s but knows he could easily get a job at the mall. He just has to go out and get it. There’s that small gap of unemployment between being employed and being unemployed. There’s just a little bit of friction as maybe your finances have to adjust.

Structural Unemployment

Structural unemployment is when economical shifts reduce the need for workers. If the economy is not doing very well, that means you’re not going to need as many workers. If it starts doing better, you’ll need more and the unemployed people become employed again. If you are having an economical shift in a direction that is negative, then you’re going to have a reduced need for workers. Say, people aren’t buying as much of a product. Whoever is producing that product isn’t going to be able to employ as many people, because they’re not going to need as many people to produce the product, or to distribute the product, or to sell the product. If you have a pickup in sales, then usually people can hire more people back again. Structural unemployment is just based on shifts in the economy.

Cyclical Unemployment

Cyclical unemployment is when natural business cycles bring about a loss of jobs. It’s not always easy to predict, but economies do tend to go through fluctuations. When the economy dips down, and there isn’t much work, and there aren’t as many products being purchased, people aren’t buying as much, then the economy is set to go into a recession. If the economy starts booming, and people are buying more things, and everyone is able to make more things and hire more people, then it gets called an expansion. There are expansion and recession cycles. During these natural business cycles, a recession will bring about a loss of jobs. That is related to structural, where I said that you may see some of these listed as one category, but to explain the difference there, we’ve broken down into two different forms of unemployment.

Seasonal Unemployment

Seasonal unemployment is when seasonal cycles reduce the need for certain jobs. You may say, “Oh, this sounds like cyclical.” However, it’s not the same. Seasonal has to do with cycles based on seasons. Cyclical has to do with cycles based on natural business cycles and the cycle of the economy. Seasonal unemployment could be people that maybe work in a farming or ranching community. There are certain times of the year when you’re going to be harvesting, certain times of the year when you’re going to be planting, and certain times of the year when it is going to be waiting for things to happen. There are jobs that come up just around certain times of the year. For instance, around Christmas, you’re going to have people who will cut down, ship, and sell Christmas trees. You’re going to have people being Santa in the mall. At Easter, you’ll have people being the Easter Bunny in the mall. There are certain jobs that come up at certain times of the year, or just during certain seasons. Those seasonal cycles will reduce the need for certain jobs at certain times of the year.

Technological Unemployment

While technological unemployment has been going on for a long time, there has been a bigger leap in that lately as technology has advanced very quickly. Think way back to how we talked about seasonal jobs. If you were a farmer and you could use a cotton gin to come and bail all your cotton, you wouldn’t need to have as many workers working for so long. If you had someone come in with a wheat thresher, you wouldn’t have to spend days or weeks threshing wheat and gathering it all up. You could work in one day and get it all done. You wouldn’t need to hire any extra workers to come and help you do that.

The technology reduced the need for certain jobs, or eliminated them, because even seasonally they wouldn’t be needed anymore with the new technology. Now, technology has advanced even further. Going with telephones, you had telephone operators. They would actually sit and connect you from one line to the other. Now, telephones do that automatically through the radio waves. You don’t actually need a person to do that for you. As more and more things have become computerized, technology has eliminated certain jobs. Even when you go to the grocery store today, you can go do self-checkout and let a computer check you out without the need for an actual sales clerk to help you check out, ring up your items, and take your money from you. It’s all done with a machine.

Review

Technological: When an advance in technology eliminates certain jobs. This is the only one that isn’t going to really bring about a lot of new jobs, because people come up with new jobs when they create these items. Actually creating them is a job, and producing some of the new technologies is a job, but it often eliminates more jobs than it produces.

Seasonal: Every season, certain jobs are still going to be needed.

Cyclical: You’ll have cycles where there’s more unemployment and cycles where there aren’t.

Structural: Shifts in the economy. Sometimes you’ll need more workers, sometimes you’ll need fewer workers.

Frictional: A change in jobs, where you’re leaving one, but you know you can get another. You’re leaving one, but you know you have one lined up in three months or six months, and you just have to wait out that frictional period of unemployment before you start your new position.

There are several different forms of unemployment, each one related to different areas or different sectors of the economy.