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Overview Of The Types Of Unemployment

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Frictional unemployment refers to the time period a person stays unemployed while shifting from one job to another. Due to various reasons, millions of people are resigning their jobs every month. A person might quit the current job due to the dissatisfaction of the job, personal issues like sickness, retirement or the person might have to move to another city. This type of unemployment is generally short-term and is favorable to the economy, as the workers are moving to better positions so that they can enhance their skills and work experience. On the other hand, it provides more chances for the companies to hire highly qualified workers for the jobs accordingly.

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Frictional unemployment is a voluntary unemployment because workers choose to be unemployed for a certain period of time. For Example, Ms Neesha works at the ABC Company as a Software Developer, she is demotivated with her job so decided to resign from the company. While she was searching for a job, one of her friends told her about a job opening for a Lead Software Developer at EFO Company so she resigned the current job and applied for the new job. Thus, until she successfully finds and begins her new job she will be temporarily unemployed. The period she stays unemployed while shifting between the jobs is known as Frictional unemployment.

Structural Unemployment

Structural unemployment occurs when the skills demanded by the companies does not match with the skills the workers offer. That is when the job skills of workers do not match with the firm’s requirement. Moreover, it is the most common type of unemployment seen mostly in the underdeveloped countries in the world, where workers find it hard to learn and modernize their skill from time to time. As a result, this type of unemployment leads to a long-term unemployment. Furthermore, the reason for this type of unemployment is mainly due to the rapid changes in the technology which requires workers with technologically advanced skill sets to do certain jobs. For example, in the manufacturing industry robots have been replacing the unskilled workers. Thus, these workers must get training in computer operations and learn how to manage the robots doing the work they used to do. Which leads to fewer employees and more robots in the industry.

Classical Unemployment

This type of unemployment occurs when the real wages which are the wage the workers are willing to receive, is greater than the market wage rate which is the wage the employers are ready to pay. Moreover, the market wage rate is the equilibrium wage rate where the demand for labor is equivalent to the supply of labor. Besides, in this type of unemployment, the demand for workers reduce as the firms have to pay more wage rates to per employee, as a result, they cannot profitably afford all the available employees at the higher wage rate.

Classical unemployment may occur when the trade unions demand higher salaries and benefits from the employer or when the government has fixed a minimum wage which is actually too high for them. For example, a mobile repairman’s salary is $2, 000 and there are 200 people willing and available for the job for this salary. However, if the salary of the job drops to $1, 000, then among the 200 people only 50 peoples are willing and available and the rest of the 150 peoples no longer want to work for this job as the salary is too small. So, if the mobile shop hires the 50 repairmen for the same salary then there will be 150 unemployed people for this job.

Seasonal Unemployment

For some kind of jobs in the world, the demand for workers fluctuates according to the changes in the season. Moreover, in this type of unemployment, the demand for labor varies consequently with the changes in the season so the workers are employed for a shorter period of time. The seasonal unemployment is common in those industries which are engaged in the seasonal production activities such as agricultural industry where there will be more demand for labors like fruit-pickers during the harvesting season than other periods of the year. Likewise, the demand for workers in the hospitality and tourism industry like housekeeping will be higher in the peak season compared to the off-season.

The unemployment in some countries is seasonally adjusted since most of the people are employed according to the seasonal demand for a certain period. For example, during the last Presidential Election of the Maldives, the Elections Commissions of the country hired around 4000 workers as officials and were employed for only for a few days.

Cyclical Unemployment

Cyclical unemployment occurs when the demand for goods and services decreases during an economic recession. Economic recession means the economy is not performing well for a few months and is determined by the Gross Domestic Production (GDP) of the country. Normally the unemployment rate will sharply rise during a recession, it is because when the overall demand for goods and services in an economy decreases which will reduce the consumption as a result the production will also fall thus the demand for workers will shrink. When the demand decreases, supply will be reduced so the companies will cut their production to a certain level and in order to be profitable, the firms will cut down some costs so they will fire some employees which leads to this type of unemployment.

Additionally, during a recession some firms might even have to shut down their business so the workers will lose their jobs. Therefore, this type of unemployment is long term and workers need to wait till the economy recovers and grow again. For example, during the financial crisis in 2008, the home builders stopped constructing new homes, as a result 2 million construction workers lost their jobs in UK.

15 July 2020

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