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3 Types of Unemployment
Module 13:
#1. Frictional Unemployment
•“Temporarily unemployed” or being between
jobs.
•Individuals are qualified workers with
transferable skills but they aren’t working.
Examples:
•High school or college graduates looking for
jobs.
•Individuals that were fired and are looking for
a better job.
You’re
The Causes and Categories
of Unemployment
Learning objectives:
• The three different types of unemployment,
frictional, structural, cyclical, and their causes.
• The factors that determine the natural rate of
unemployment.
Fired!
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3 Types of Unemployment
Seasonal Unemployment
•This is a specific type of frictional
unemployment which is due to time of year
and the nature of the job.
•These jobs will come back
I. The Natural Rate of Unemployment
There is still a level of
unemployment even when
jobs are plentiful.
Even in the best of times,
jobs are constantly being
created and destroyed.
Examples:
•Professional Santa Clause Impersonators
•Construction workers in Alaska
This will make more sense
if we know a little more
about the various types of
unemployment.
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3 Types of Unemployment
#2. Structural Unemployment
A. Job Creation and Destruction
The job market is constantly fluctuating.
In Beaver Dam alone a handful of local
businesses have opened in recent months
or maybe closed. This is happens all
over the country.
There are three (3) different types of
unemployment that describes how jobs
are constantly being created and
destroyed.
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•Changes in the structure of the labor force
make some skills obsolete.
•Workers DO NOT have transferable skills and
these jobs will never come back.
•Workers must learn new skills to get a job.
•The permanent loss of these jobs is called
“creative destruction.” (Why?)
Examples:
•VCR repairmen
•Carriage makers
•Glass blowers
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3 Types of Unemployment
3 Types of Unemployment
#3 Cyclical Unemployment
Technological Unemployment
•Type of structural unemployment where
automation and machinery replace
workers causing unemployment
Examples:
•Auto assemblers fired as robots take over
production
•Unemployment that results from economic
downturns (recessions).
•As demand for goods and services falls,
demand for labor falls and workers are fired.
Examples:
•Steel workers laid off during recessions.
•Restaurant owners fire waiters after months
of poor sales due to recession.
• Producers of Capital Goods (tractors)
fire assemblers
This
sucks!
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The Natural Rate of Unemployment
Two of the of the three types of unemployment
are unavoidable:
•Frictional unemployment
•Structural unemployment
•Together they make up the natural rate of
unemployment (NRU).
We’re at full employment if we have only
the natural rate of unemployment.
Remember that the supply of labor (SL) comes from
workers who wish to supply more labor at higher wages.
The demand for labor (DL) comes from employers who wish
to employ fewer workers at higher wages.
•This is the normal amount of unemployment
that we SHOULD have.
•The number of jobs seekers equals the
number of jobs vacancies.
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W80 was the wage in the
1980s. The demand for timber
workers was strong, droving the
economies of many towns in
Western states. Employment
was L80. As this renewable
resource was overexploited and
species became endangered,
more forests were protected and
the demand for timber workers
permanently decreased.
At the old wage W80, the quantity of timber workers seeking to
supply their labor (L80) exceeds the quantity of labor demanded (Ld).
This difference is structural unemployment.
Once the labor market adjusts to lower wage and lower employment,
the structural unemployment is eliminated. However, if wages don’t
adjust downward, what results? A SURPLUS OF WORKERS
Frictional Employment
+ Structural Employment
Natural Employment
Natural rate of unemployment:
the normal unemployment rate
around which the actual
unemployment rate fluctuates.
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The Natural Rate of Unemployment
Full employment means
NO Cyclical unemployment!
Economists generally agree that an
unemployment rate of around
4 to 6 % is full employment.
4-6% Unemployment = NRU
Okun’s Law: When unemployment rises 1%
above the natural rate, GDP falls by about 2%
At the end of December 2014 the U.S. was at 5.6%
Wisconsin was at 5.2%
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What changes take place in the
Natural Rate of Unemployment?
1. Changes in Labor
Force Characteristics
Older, more experienced,
workers are more likely to
be employed.
As the U.S. workforce has gradually aged, this has
contributed to a declining natural rate of unemployment.
What changes take place in the
Natural Rate of Unemployment?
2. Changes in Labor Market Institutions (con’t)
Better technology in job
search (on-line services) has
lessened the time a worker is
in between jobs, lessening
the frictional unemployment.
3. Changes in Government Policies
The government can offer subsidies to
employers to employ workers who are
currently unemployed.
Programs to retrain workers with
obsolete skills can also lessen the natural
rate of unemployment.
2006 Practice FRQ
2. Changes in Labor Market Institutions
The declining role of unions
in the U.S. labor market has
weakened their ability to
raise wages and some of that
structural unemployment has
been reduced.
Union membership presently stands at 11.1%
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