Types of Unemployment
Updated : May 2nd, 2022
Unemployment is an important issue in American politics no matter what side of the aisle you’re on. Whether the current numbers are high or low, lawmakers and everyday citizens have good reason to care. The unemployment rate at any given time is a key indicator of the health of the economy.
Even though the term “unemployment” is spoken frequently, there’s more to it than most people think. Knowing the various types of unemployment can give us a deeper understanding of how and why it affects economic growth so much.
12 Types of Unemployment
- Frictional Unemployment
- Structural Unemployment
- Natural Unemployment
- Seasonal Unemployment
- Voluntary & Involuntary Unemployment
- Cyclical Unemployment
- Disguised Unemployment
- Real Unemployment
- Technological Unemployment
- Classical Unemployment
- Long Term Unemployment
- Youth Unemployment
There are several ways to look at unemployment numbers because factors both within and outside of our control affect the labor market and no two jobs are alike. One key way economists study these trends is by examining the reason people enter and leave the labor force. By doing this, they can tease out temporary factors that tend to right themselves, or use it to examine systemic issues that are causing unemployment on a larger and more long-term scale.
What Is Unemployment?
Unemployment is a monthly data point calculated by the Bureau of Labor Statistics (BLS) that shows how many unemployed individuals there are in the U.S. at a given time. There are three main criteria that must be met to be counted as “unemployed”:
- The individual is not working at all, including any part-time or seasonal work.
- They are able and available to work (meaning they’re not disabled, injured, retired, and have some means of transporting themselves to a job).
- The individual is actively searching for new work (this means they’ve looked within the last four weeks).
The BLS counts workers aged 16 and older, knowing many of these younger Americans will be in school and not “actively” looking for work. If you do not meet the criteria, then you are not considered to be part of the labor force and you will not be counted as either employed or unemployed. This could be because you’re retired, because you’re a stay-at-home parent, a student, or a “discouraged worker” meaning you are able and available to work but you’ve stopped looking.
The BLS then takes the number of unemployed (by the definition above) and divides it by the total number of people in the labor force to get the unemployment rate, shown as a percentage. This is done both at the state and national levels each month. Those who are unemployed by this definition may be able to seek weekly unemployment benefits, though the exact amount you receive will vary depending on the state you live in and your previous rate of pay. If you’re curious about how much you may be entitled to, you can use an unemployment rate calculator to estimate your benefit.
12 Types of Unemployment
1. Frictional Unemployment
Frictional unemployment is a normal part of the labor market and is considered a healthy indicator that people are moving into jobs where they can be more productive. This occurs when a worker leaves one job and begins searching for a new job in a healthy economy. Frictional unemployment is a temporary state and can be better thought of as someone who’s simply between jobs, and there is no way to eliminate it completely. Because of this, the unemployment rate will never be zero, since there will always be a certain percentage of workers who are between jobs.
For example, a worker who leaves their job voluntarily or is fired may wish or need to take time off in the interim before starting searching for a new job opening. Frictional unemployment is also seen with recent college graduates who’ve been out of the job market and are now job hunting.
2. Structural Unemployment
Structural and frictional unemployment are the two types of naturally-occurring unemployment that the BLS considers part of normal economic activity. With structural unemployment, a worker is out of a job because there is a mismatch in their skills and the work that’s available to them. This typically lasts longer than frictional unemployment because a worker will usually have to acquire new skills to rejoin the labor force.
One common way this happens is through technological advances which can displace workers who used to perform the task manually. This is seen a lot in the agricultural field and manufacturing when robots and automated machinery take over certain functions, but it can also happen due to international trends such as factories moving overseas and displacing American workers. The workers who did have these jobs now have to look for a new line of work because their current skill set is no longer needed. These workers must now be retrained, go back to school, or take a lower-level job.
3. Natural Unemployment
Natural unemployment is an umbrella term for the lowest base rate of unemployment an economy will have, even when functioning well. This number is usually made up of both frictional and structural unemployment and reflects the fact that there will always be workers moving in and out of the job market. Although this number fluctuates, around a 4.5% unemployment rate is generally considered to be the lowest that a healthy economy will have.
4. Seasonal Unemployment
Seasonal unemployment is a recurring shift in the employment rate due to the predictable patterns of the seasons. This could be due to an upsurge in jobs in the beach resort and theme park industries in the summer, agricultural jobs during harvesting seasons, retail jobs and ski resorts around the holiday season, or a reduction in construction jobs in the winter. And, although economists do track this rate, the BLS makes a seasonal adjustment to account for this so the overall rate doesn’t fluctuate in response to these short-term patterns.
5. Voluntary & Involuntary Unemployment
Voluntary unemployment refers to a person who can work but chooses to be unemployed. Voluntary unemployed people are not included as part of the labor force because they are not “actively” looking for work, and therefore they do not affect the unemployment rate.
Involuntary unemployment, on the other hand, occurs when someone is able and available to work at market wage and wants a job, but does not have one. There are a number of underlying reasons for involuntary unemployment, but it always means that the supply of labor outweighs the demands of the job market and these factors are typically out of the worker’s control.
6. Cyclical Unemployment
Cyclical unemployment is sometimes referred to as “deflationary unemployment” because it’s typically in response to a recession. When demand for goods and services goes down, people don’t buy as much, and subsequently, employers are unable to retain as many workers. Lay-offs are common during this time and then the laid-off workers have less disposable income to spend, further increasing the effects of the down-turned market and unemployment.
Governments usually intervene with fiscal measures designed to inject more money into the economy, or else they risk a major depression as happened in 1929 or a great recession that was seen in the late 2000s. The most common way they do this is through reduced interest rates, lower taxes, or cash incentives and stimulus payments.
7. Disguised Unemployment
Disguised unemployment refers to workers who are technically employed, but their jobs and skills are redundant and they are not contributing to the output of their sector. This can be hard to study since it requires economists to survey those who are unemployed and ask them about their current work engagement and how they may be underutilized.
8. Real Unemployment
Real unemployment is more often referred to as “U-6,” and isn’t so much a type of unemployment as it is an alternative way of measuring unemployment. This revised way of measuring includes those workers who have not looked for a job within the last six weeks but have looked within the last year, and those employed workers who only work part-time (sometimes referred to as the “underemployed”). Consequently, the real unemployment rate is always higher than the standard rate (also called the U-3 rate) by as much as five to seven points. Many economists around the world prefer to use the U-6 rate as they see it as a more realistic measure of what’s really going on in the job market.
9. Technological Unemployment
Technological unemployment is a type of structural unemployment and refers to workers who are displaced specifically by technological advancements. This could be due to newer machinery, automation, or more efficient production methods, and employers will use these new technologies in place of workers. However, it’s generally thought of to be a temporary condition, as labor conditions tend to even out as the innovations eventually create new positions for workers.
10. Classical Unemployment
Classical unemployment is also called “real wage unemployment,” and it happens when wages are so high that employers are unable to hire the full number of available workers. This is often seen when unions negotiate higher salaries, but can also be due to long term contracts that stipulate high wages that eventually become too high to maintain, or when state or federal governments set a minimum wage that employers can’t keep up with. Consequently, employers either must hire fewer people or lay off current employees.
11. Long Term Unemployment
As the name implies, long term unemployment refers to workers who have been looking for a job for longer than 27 weeks. Typically, unemployment insurance will make weekly payouts to people for a maximum of 26 weeks, though this can often be extended to a full year if you meet certain criteria. This type of unemployment can be particularly devastating for individuals because employers are more likely to pass up someone who’s been out of the labor force for so long, and it can be incredibly demoralizing and discouraging for the person looking for work.
12. Youth Unemployment
The youth unemployment rate only looks at workers ages 16 to 24 years old. Just like with the standard rate, only those who are able and available to work and are actively looking for work (within the last four weeks) are counted. This rate tends to be much higher than the national average, but also tends to drop more in July since many teenagers and students obtain summer employment.
Understanding the Different Types of Unemployment
While there are certainly other indicators of how well the economy is doing at any given time, the unemployment number is one of the most reliable indicators we have to work with. Thankfully, most unemployment is only temporary, but for others, it can last much longer. Thousands of Americans have recently had to face unemployment as a result of the Covid 19 pandemic and for them and others who have found themselves jobless, there are government benefits available.
All states offer unemployment benefits to those who qualify, but you have to apply and meet certain criteria. If your request is denied, there is an unemployment appeal process you can go through either on your own or with the assistance of an employment lawyer. You may be denied if your application is incomplete or if you were fired for misconduct, suspected of unemployment fraud, or voluntarily quit your job. However, in most cases, if you lost your job due to no fault of your own and you’re willing and able to look for new work, you should be able to qualify.
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