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Understanding the Types of Unemployment
Dive into the world of unemployment types, from structural to seasonal. Gain insights into economic trends, job market shifts, and policy implications. Perfect for students seeking a solid foundation in labor economics.

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Now Playing:Types of unemployment – Example 0a
Intros
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  1. Frictional, Structural, Cyclical Unemployment
    • Frictional - time period of finding another job
    • Structural - changes in technology, competition
    • Cyclical - changes in business cycle
  2. Natural Unemployment
    • Frictional & Structural Change
    • No Cyclical Unemployment
    • Influences of Natural Employment Rate
Employment & unemployment
Jump to:NotesConceptFAQsPrerequisites
Notes

Frictional, Structural, Cyclical Unemployment

Frictional Unemployment: unemployment that occurs when people are searching for a new job or switching to another job.

Example: Kevin has just graduated from college and is actively spending his time to look for a job.

Structural Unemployment: unemployment that occurs due to a mismatch between the skills of a worker and the jobs that are available. This usually happens when there are technological changes.

Example: Online media draws people away from actual physical newspapers, so journalists and newspaper employees get laid off.

Cyclical Unemployment: unemployment caused by the fluctuations in the business cycle.

During recession, unemployment rate is high because the demand for goods are low.

During expansion, unemployment rate is low because the demand for goods are high.


Natural Unemployment

Natural Unemployment: unemployment that happens from only frictional and structural change. There is no cyclical change at all.

Natural Unemployment Rate: natural employment as a percentage change of the labor force.

Full Employment: The case that occurs when the unemployment rate is equal to the natural unemployment rate.

Influences of Natural Unemployment:
  1. Age Distribution of the Population: a young population has a big number of job seekers every year with high frictional unemployment. An aging population has a low number of job seekers with low frictional unemployment.

  2. Scale of Structural Change: when technological change is very small, some workers can still keep their current jobs. However, if technological changes are big, then millions of jobs can be lost since the jobs will require a complete different set of skills.

  3. Real Wage Rate: Unemployment could depend on the wage or salary of the job. Minimum wage jobs usually attract unproductive workers or lead workers to quit and look for a new one, while jobs above minimum wage (efficiency wage) attract productive workers and discourages them from quitting.

  4. Unemployment Benefits: Unemployment benefits increase the natural unemployment rate because it decreases the opportunity cost of searching for a job.



Unemployment & GDP

Output Gap: the difference between real GDP and potential GDP. The output gap can be zero, positive, or negative.

If:
  1. Unemployment rate = Natural unemployment rate    \; →   \; Output Gap is 0.

  2. Unemployment rate < Natural unemployment rate    \; →   \; Output Gap is positive. In this case, the real GDP is higher than potential GDP. This happens during the expansion.

  3. Unemployment rate > Natural unemployment rate    \; →   \; Output Gap is negative. In this case, real GDP is lower than potential GDP. This happens during the recession because there is high cyclical unemployment.
Concept

Introduction to Types of Unemployment

Welcome to our exploration of unemployment! Understanding the different types of unemployment is crucial for grasping economic concepts. Our introduction video serves as an excellent starting point, providing a clear and concise overview of this complex topic. As we delve into the various forms of unemployment, you'll discover how each type affects the economy differently. From structural unemployment caused by long-term shifts in the job market to cyclical unemployment tied to economic downturns, we'll cover it all. We'll also explore frictional unemployment, which occurs during job transitions, and seasonal unemployment, common in industries like tourism and agriculture. By the end of this section, you'll have a solid foundation in the types of unemployment, enabling you to better understand economic reports and policies. Remember, this knowledge is key to interpreting labor market dynamics and their impact on society.

FAQs

  1. What are the main types of unemployment?

    The main types of unemployment are frictional, structural, and cyclical. Frictional unemployment occurs during job transitions, structural unemployment results from skills mismatches, and cyclical unemployment is tied to economic downturns.

  2. How does cyclical unemployment affect GDP?

    Cyclical unemployment has a significant impact on GDP. During economic downturns, as unemployment rises, consumer spending decreases, leading to reduced production and a negative output gap. This results in actual GDP falling below potential GDP, indicating economic contraction.

  3. What is the natural unemployment rate?

    The natural unemployment rate, also known as the Non-Accelerating Inflation Rate of Unemployment (NAIRU), is the lowest sustainable level of unemployment in an economy. It includes frictional and structural unemployment and represents the unemployment rate when the economy is at full employment.

  4. How do unemployment benefits influence natural unemployment?

    Unemployment benefits can affect natural unemployment rates. While they provide crucial support for job seekers, overly generous or prolonged benefits may increase unemployment duration as individuals become more selective about job offers or reduce their job search intensity. Well-designed benefit systems that encourage active job searching and provide support for retraining can help match workers to appropriate jobs more effectively.

  5. What is the output gap and how does it relate to unemployment?

    The output gap is the difference between an economy's actual real GDP and its potential GDP. A positive output gap occurs during economic expansion, leading to lower unemployment rates than the natural rate. Conversely, a negative output gap during recessions results in higher unemployment rates. The output gap helps policymakers understand the relationship between unemployment and economic performance, guiding decisions on fiscal and monetary policies.

Prerequisites

Before delving into the complex world of unemployment types, it's crucial to understand the foundational concept of market equilibrium. This prerequisite topic is essential for grasping the dynamics of the labor market and how different types of unemployment emerge.

Market equilibrium, particularly in the context of the job market, provides a critical framework for analyzing unemployment. By understanding how supply and demand forces interact to create equilibrium in various markets, students can better comprehend the factors that lead to different types of unemployment.

The concept of job market equilibrium is especially relevant when studying unemployment types. It helps explain why unemployment occurs even in seemingly healthy economies. For instance, frictional unemployment often exists at equilibrium, as there's always some level of job turnover in a dynamic economy.

Moreover, grasping market equilibrium principles aids in understanding structural unemployment. When the job market is in disequilibrium due to mismatches between worker skills and job requirements, it can lead to prolonged periods of unemployment for certain segments of the workforce.

Cyclical unemployment, another important type, is closely tied to fluctuations in market equilibrium. Economic downturns disrupt the equilibrium, leading to a decrease in job opportunities and an increase in unemployment. Understanding how markets adjust to reach new equilibrium points is crucial for analyzing this type of unemployment.

The concept of market equilibrium also helps in comprehending seasonal unemployment. Certain industries experience regular fluctuations in labor demand, creating temporary disequilibrium in specific job markets. This knowledge allows students to predict and explain these cyclical patterns in employment.

Furthermore, policies aimed at reducing unemployment often target market equilibrium. For example, government interventions may seek to shift the equilibrium point to increase employment levels. Without a solid understanding of market equilibrium, it would be challenging to evaluate the effectiveness and potential consequences of such policies.

In conclusion, mastering the prerequisite topic of market equilibrium is indispensable for a comprehensive understanding of unemployment types. It provides the analytical tools necessary to explore why different forms of unemployment occur, how they persist, and what measures might be effective in addressing them. As students delve deeper into the study of unemployment, they'll find that this foundational knowledge continually informs their analysis and understanding of labor market dynamics.