Types of Unemployment
Unemployment refers to the joblessness of those qualified to hold a professional position and actively looking for it but cannot get any. This term is used to describe or characterize a group of unemployed people.
The term "unemployment" is often not adequately understood because it applies to people expecting to come back to work after being cleared and excludes people who quit trying to look for work. It can be for various reasons, such as leaving a job to obtain a degree, old age, medical conditions, and personal problems.
Who are Unemployed?
Individuals who are not trying to find work but have the urge to work are also not considered unemployed. The group available and wanting to work includes both unemployed and employed individuals. People who are not seeking employment, like stay-at-home moms, college students, and unhappy workers, are excluded from the total workforce or labor force. They are considered among people who have stopped looking for work because they believe no job is available.
Unemployment can be shown as the number or percentage of unemployed persons in a nation. Researchers and economic experts can routinely account for average population growth. Or else it might affect employment and unemployment data by calculating a percentage known as the unemployment rate.
The formula of the unemployment rate is:
Unemployment rate = (Unemployed workers / Total labor force) x 100
Unemployment is a heated topic in many nations across the globe. Policymakers use unemployment statistics to evaluate everything from financial stability to citizen happiness by looking at the unemployment rate.
Consequences of Unemployment
A growing economy requires a lower unemployment rate. Unemployment that is both excessive and long-term can put a country under a great deal of stress in three aspects:
Individuals: Unemployed persons cannot meet their daily expenses, leading to severe stress, illness, and even homelessness.
Economic efficiency: Many job seekers would consider new positions below their skill level in difficult economic times, known as "underemployment". This situation leads to a loss of human capital for a country's economic labor force. Unemployed people will also drastically cut on their daily spending. Consumer spending is one of the main drivers of economic growth, and for this, the economy will significantly decline if individuals do not spend.
Socio-political stability: If unemployment increases, the citizen unhappiness rate could lead to significant social unrest.
Types of Unemployment
Unemployment can be classified into cyclical, structural, and frictional. These are difficult to quantify directly and frequently mixed up. However, they give a good framework for considering unemployment.
Cyclical Unemployment
Change in the economic movement across the market cycle causes cyclical unemployment. During a slowdown in the economy, fewer positions are open for those who wish to work due to a lack of consumer spending. Businesses or organizations facing lower demand may downsize their workforce by dismissing current employees or employing fewer new employees. Consequently, persons searching for a job will have a more challenging time finding work. When demand rises, the scenario is the total opposite.
This type of unemployment is frequently referred to as moderate duration, like 1 to 12 months. For example, the unemployment rate rose dramatically during the early 1990s recession, fell to a bare minimum by the 2000s, and then rose again around the times of the global economic crisis.
An increase in cyclical unemployment may indicate that the economy is not performing to its full potential. However, because more individuals are fighting for jobs, businesses may give smaller pay raises, resulting in lower inflation. Aggregate demand-stimulating policies can help minimize unemployment (because companies experiencing higher demand are likely to employ more people).
Structural Unemployment
Usually, this kind of unemployment occurs when there is a gap between job vacancies and persons searching for employment. This imbalance could be caused because job applicants lack the skills necessary to do the offered tasks. Also, the open positions are located far away from the unemployed people.
Employees may lose their jobs if they engage in failing sectors or have chances to be replaced due to high technological advancements. They may find it challenging to manage work elsewhere, and they may need to learn new skills or shift to a place with more chances.
The percentage of individuals employed in typical manual labor has decreased rapidly. Few of these activities are mechanized as a result of technological advancements. For instance, the manufacturing industry has many repetitive manual tasks that have reduced importance in the economy.
Usually, unemployment caused by structural factors lasts longer. This is because workers may need to gain new skills or relocate to a different place to obtain a job that fits their qualifications. As a result, people unemployed due to structural changes are more likely to be out of work for an extended period, like for more than 12 months.
This type of unemployment is different from cyclical unemployment because it remains even when the economy is doing well. Generally, this form of unemployment should not directly affect employment or inflation and is best explained through initiatives that focus on talents and the labor pool.
Frictional Unemployment
Frictional unemployment happens when individuals shift in and out of the labor force and between companies in the labor market. It is required for a dynamic labor market and supports the effective utilization of labor throughout the economy. Individuals may not be able to find work straight away and will have to put in time and energy to find the perfect job. Businesses also contribute directly to finding qualified applicants to fill employment openings. As a result, job seekers are not instantly matched with doors and may face a phase of temporary unemployment.
This form of unemployment is usually for a short period. Frictional unemployment is expected at any time in the business cycle and does not affect wages or inflation.
These three categories of unemployment are not mutually exclusive. For example, an increase in cyclical unemployment could raise structural unemployment. However, when people stay unemployed for a long time, their abilities and efficiency diminish. For this reason, they are viewed as less attractive options, and their chances of being recruited again decrease in the future.
Other Types of Unemployment
There are a few more kinds of unemployment to explore as well. For example, when considering labor market circumstances, the underemployment rate can be viewed as a complementing indication to the unemployment rate.
Underemployment
This happens when employees are involved but are willing to do the job for longer hours. Generally, there are two types of underemployed people. One is part-time employees who might like to work overtime. Another one is employees who are used to working full-time but are now working part-time. Underemployment is more common among more part-time employees, such as girls, younger employees, and older people.
Hidden unemployment
Individuals are not officially listed as unemployed in the labor market but would likely work if given the opportunity. An example can be someone who has been searching for jobs for so long, has lost all hope, and has quit looking yet still wants to have a job.
Seasonal unemployment
During a decreasing demand for seasonal labor, seasonal unemployment means that those who work in seasonal jobs become jobless. This usually happens when a season finishes and a new one begins. It can be holidays or because of severe weather conditions.
For instance, someone who appears to work in a cottage or hotel during the summer may find themselves unemployed when the fall comes, and the summer activities must close.
Seasonal unemployment is widespread in tourist-heavy areas. Various tourism attractions cease or decrease activities based on year and season. This is certainly relevant for open-air tourism destinations, which may only be designed to manage certain weather conditions.