UNEMPLOYMENT (MEANING, TYPES AND CAUSES)

Unemployment is a situation where people who are actively seeking a job cannot find any. it is usually measured using the unemployment rate.

There are three main types of unemployment: Frictional, cyclical, and structural unemployment. 

Each type of unemployment is defined by its causes. 

1. Frictional unemployment: Wiktionary defined frictional unemployment as a type of unemployment explained by people being temporarily between jobs or searching for new ones. 

Frictional unemployment occurs because it takes time for workers to search for jobs that best suit them. As you will know later in this post, this kind of unemployment is always present even when there is full unemployment in an economy. 

One thing you should know about frictional unemployment is that it is never caused by the business cycle of an economy.

Common causes of frictional unemployment are:

A. Search unemployment: This is the commonest cause of frictional unemployment. This occurs because workers do not accept the first jobs on offer or there is a mismatch between job-seekers and available jobs. 

B. Casual unemployment: This occurs when workers are out of work as a result of the expiration of their previous work contracts. 

An actor provides us with a good example of casual unemployment. When he is given a movie role, he is employed. 

After acting the movie role, chances are that he would have to wait for some time before he gets a new movie role. During this wait for a new movie role, the actor will be casually employed. 

Casual unemployment is common in industries like catering where day-to-day contracts are prevalent. Casual unemployment can also be seen in industries like farming where there are frequent short-term contracts.

C. Seasonal unemployment: The demand for certain workers fluctuates during the year, thereby creating a special kind of unemployment called seasonal unemployment. 

Seasonal unemployment occurs when workers' employment is dependent on the particular period of the year. 

In other words, seasonal unemployment is a situation where people are unemployed in a specific period of the year because the demand for such labor is lower than usual.

The reason for this is that the industry where they are employed operates auspiciously at a certain period of the year.

For example, during the yuletide period, the demand for Santa Claus disguises( or if you like, father Christmas) is likely to be highest. 

However, after the yuletide period, Santa Claus disguises may not find a job and, therefore, will be seasonal unemployed.

2. Structural unemployment:  As its name suggests, structural unemployment is unemployment that arises from changes in the structure of an economy. 

Factors such as technology, competition can lead to changes in the economic structure of an economy. 

When there is a change in the economic structure of an economy, there would be changes in the demand and supply patterns for some industries/regions of the economy. 

This means that, while some industries/regions will be expanding production, others will be contracting production. 

This invariably means workers will be demanded in one industry (those expanding production) while industries (experiencing a contraction in production) will lay off workers.

If those workers laid off do not have transferable skills, they can't move from one industry to another, and, therefore, will be structurally employed.

Two cases of structural unemployment can be identified:

A. Technological unemployment: As its name also suggests, technology unemployment is caused by technological change. Technological change will cause unemployment if it leads to the introduction of labor-saving machines.

For example, if there is a technology change that results in the production of more robots, then certain assembly-line workers will be technologically unemployed

This reason is that assembly-line factories will sack their workers as robots can now perform their functions.

Technological unemployment usually occurs for a short period.

B. Regional unemployment: when industries contracting production are located in a particular region, there would be regional unemployment

3. Cyclical unemployment: This unemployment is directly related to the business cycle (expansion and recession) of an economy. During economic expansion, the economy is experiencing continued economic growth and aggregate demand will increase.

As aggregate demand increases, firms will seek to expand production, and, therefore, demand more labor. This means that there will be low cyclical unemployment.

Now, think of what will happen if the economy is in a recession? The economy will be experiencing some kind of a fall in economic activities. 

As a result, aggregate demand will decrease. And as aggregate demand decrease, the demand for labor will also decrease. Hence, cyclical unemployment will be high. 

Thus, we see that cyclical unemployment tends to be high when there is a recession and low when there is an expansion. 

Because cyclical unemployment tends to be high when there is a decrease in aggregate demand, cyclical unemployment is also called demand-deficient unemployment or Keynesian unemployment

As you will know in the next paragraph, cyclical unemployment is not part of the natural rate of employment. The natural rate of unemployment consist of just frictional and structural unemployment.

So far, we have been discussing the causes of unemployment. Before we continue, here is one question that I want you to answer.

Is zero unemployment rate possible

The answer to this question is NO. This is because unemployment exists even if the economy is healthy

Economists have defined the natural rate of employment to mean the unemployment that occurs when an economy is healthy.  

In other words, the natural rate of unemployment is the unemployment that occurs as a normal part of the functioning of the economy.

The natural rate of unemployment is usually taken to be the sum of frictional and structural unemployment when the aggregate demand of labor is equal to the aggregate supply of labor.

When the official unemployment rate of the economy is equal to its natural rate of employment, we say the country is at full employment.

When we speak of full employment, we do not mean everyone in the country is employed. Rather, we mean the actual employment rate in an economy is equal to its natural rate of employment. That is, there is no cyclical unemployment.

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Final Words

We have just discussed unemployment. For a recap, we say unemployment is a situation where people who are actively looking for jobs are without jobs.

We also told you that there are three types/causes of unemployment. They are frictional unemployment, structural unemployment, and cyclical unemployment.

We also told you that the unemployment rate can never be zero because frictional and structural unemployment will always exist in an economy.

Ok, that is all for now. Got questions relating to unemployment, do well to ask our telegram community. Also, remember to subscribe to our telegram channel.

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