Types of unemployment
Seasonal unemployment - an unemployed person, employed for part of the year, e.g. a
ski instructor or waiter in a tourist resort.
Frictional unemployment - worker who is in between jobs and therefore only
unemployed temporarily. This person may have lost their job or have graduated college
and has begun the task of looking for work. This would also apply to contract workers
whose contracts have expired or those workers who have found work and are waiting for
that job to start.
Structural unemployment - long term unemployment caused as a result of a fall in the
demand for a particular type of labour occurring as a result of the changing structure of an
economy due to changes in the demand/supply and/or technology. It occurs when there is
a mismatch between the skills of unemployed workers and the jobs available or as a result
of rigidities in the labour market.
Real wage unemployment - unemployment caused by workers being unwilling or unable
to accept paid employment. The wage offered is insufficient to maintain the standard of
living that a worker desires. This type of unemployment is common in high wages
economies, where a combination of generous unemployment benefits and a high cost of
living make it difficult for some workers to accept a low wage position.
Cyclical unemployment - a person unemployed because of a downturn in the economic
cycle (a recession). Once the economy has returned to its natural rate of unemployment
then the worker is likely to find work, given their qualifications, skills and experience.
The natural rate of unemployment - this consists of the level of frictional and structural
unemployment present in the economy. Such a level of unemployment is natural because
even the healthiest of economies will have workers starting and leaving positions, looking
for better jobs as well as some industries in decline as well as other new industries
emerging.
Activity 1
(1) Describe the following types of unemployment?
(a) A fifty year old man with a successful career as a gas exploitation engineer. He has
chosen to taken voluntary retirement as there are no suitable jobs in the area where he
lives. The reserves of gas have dried up and he has no desire to move elsewhere where
suitable jobs are available.
Structural
(b) A student leaves university with a First class degree in information technology. There are
a number of positions open to her but she decides to take a 3 month backpacking holiday in
Thailand before taking up her new position.
Frictional
(c) A farmer who is declared medically unfit to work due to a disability that prevents him
from strenuous physical work.
Structural
(d) A computer engineer whose business collapses during the financial crisis of 2008 / 2009
(e) A footballer in a lower division club whose season has finished. The new season starts in
four months time and he is not paid during the close season.
(f) A designer of beautiful designer clothing whose business is affected by the slow down in
the world economy.
(g) A computer engineer, paid on a contract basis, whose employment contract comes to an
end.
(h) A young women has been out of work for a long period of time and has no formal school
qualifications. The only work available is part-time and pays her no more than she receives
in unemployment benefits.
(2) Complete the following sentence, the relationship between GDP and __the rate
of_____ unemployment is inversely correlated.
(3) Explain possible measures that a government might employ to reduce the high rate of
unemployment among certain ethic groups as well as the high rates of unemployment among
the young.
You can train people to learn how to work, you can increase minimum wage, you can make
it. Governments can also give subsidies to firms in order to facilitate emplyoe
Activity 2: The natural rate of unemployment
(a) The table describes some of the measures that a government might employ to reduce the
unemployment rate in the economy. By each one explain the type of unemployment that the
measure is designed to tackle.
Policy
How will it work
Type of unemployment
The creation of job centres
and recruitment agencies
Facilitates greater sharing
of information about job
vacancies with an
economy
All but primarily frictional
Re-education and
retraining schemes aimed
at the
unemployed
Help address the skills gap
within the unemployment
Structural
Expansionary fiscal and
monetary policies
Boosting AD to c lose a
recessionary gap in the
Cyclical
economy
Policies aimed at reducing
the bargaining power of
trade unions and
professional
associations.
Increase the level of labour Structural / Voluntary
market flexibility by
preventing those
organisations from
restricting the supply of
labour into certain
professions
Provision of socialised
housing for new workers to
an area of low
unemployment.
Improves the geographical
mobility of the labour
force by helping
unemployed workers to
relocated to other parts of
the country where the
available jobs are
Structural
Reducing the level or
restricting access to out of
work benefits
Encourages more workers
to take a low paid job,
rather than remain of
unemployment benefits
A Real wage
unemployment
Activity 3
Study the information in the table below and answer the following questions:
1. Is there a correlation between GDP per capita and the rate of unemployment? 2.
If not, what else may account for the differences between unemployment rates in
selected countries?
A little correlation between GDP per capita and the rate of unemployment.
1. Differences in unemployment levels because of different minimum wage
levels in different nations, as well as different access to out of work benefits
between different nations.
2. Different ways of recording unemployment statistics between different nations
3. Countries may be a different points in the fiscal cycle. Some countries may have
right rates of cyclical unemployment and recessions. While other nations may be at
the full employment level
4. Some nations have more flexible labour markers than others. As a general rule the UK and the
USA have greater levels of labour market flexibility than a number of EU nations. They also have
generally lower levels of unemployment.
Unemployment rate in selected countries (2014)
Country
Number of
unemployed people
as a % of the
labour force
GDP per capita (PPP)
Greece
28%
$ 23,900
Spain
26%
$ 30,100
South Africa
26%
$ 11,500
Ireland
13.5%
$ 41,300
France
10.2%
$ 35,700
Turkey
9.3%
$ 15,300
USA
7.3%
$ 52,000
Mexico
4.9%
$ 15,600
Malaysia
3.1%
$ 17,500
Activity 4: Link to the assessment in paper one
(a) Illustrate using a diagram the difference between structural and cyclical / demand
deficient unemployment. [10 marks]
(b) Using real world examples, evaluate the view that the use of supply-side policies is the
most effective method of reducing unemployment in the economy. [15 marks]