People become unemployed for many different reasons, and the reasons are often grouped into different forms of unemployment.
Now, you may see some variation on these particular categories.
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The following transcript is provided for your convenience.
Usually, you could fit unemployment into one of these categories, or you may see some of the categories lumped together into one bigger category.
First, let’s look at frictional. Frictional unemployment is when workers change jobs and are unemployed while waiting for a new job. So, a worker may already have a job lined up, but they may not be able to start for a few months.
So, if they’re unemployed for those few months, it’s just a little friction between one job ending and one beginning. It’s not long-term unemployment. Or maybe a worker is leaving a job but they know they can get another one very easily.
Say a high school kid who is leaving a job in McDonald’s but knows he could easily get a job at the mall, he just has to go out and get it. So, there’s that small gap of unemployment between being employed and being unemployed, and there’s just a little bit of friction, as maybe your finances have to adjust.
Next, you have structural. Structural unemployment is when economical shifts reduce the need for workers. So, if the economy is not doing very well, then that means you’re not going to need as many workers. If it starts doing better, you’ll need more, and the unemployed people will become employed again.
But if you are having an economical shift in a direction that is negative, then you’re going to have a reduced need for workers.
Say people aren’t buying as much of a product. Then whoever’s producing that product is going to be able to employ as many people because they’re not going to need as many people to produce the product or to distribute the product or to sell the product. If you have a pickup in sales, then usually people can hire more people back again. But structural unemployment is just based on shifts in the economy.
Next, you have cyclical unemployment, and cyclical is when natural business cycles bring about a loss of jobs. It’s not always easy to predict, but economies do tend to go through fluctuations. When the economy dips down and there isn’t as much work or there aren’t as many products being purchased, people aren’t buying as much, then the economy is said to go into a recession.
If the economy starts booming and people are buying more things, and everyone’s ability to make more things, and hire more people, then it gets called an expansion. So, there are expansion and recession cycles, and during these natural business cycles, a recession will bring about a loss of jobs, and this is kind of related to structural, where I said you may see some of these listed as one category, but to explain the difference there, little bit, we broke it down into two different forms of unemployment.
Next, we have seasonal. Seasonal unemployment is when seasonal cycles reduce the need for certain jobs. Now, you may say, “Oh, this sounds like cyclical.” But it’s not the same because seasonal has to do with cycles based on seasons, cyclical has to do with cycles based on natural business cycles and the cycle of the economy.
So, seasonal unemployment could be people that maybe work in a farming or ranching community, there are certain times of the year when you’re going to be harvesting, certain times of the year when you’re going to be planting, and certain times of the year where you’re just going to be waiting for things to happen. So, there’s always that, and then there are jobs that come up just around certain times of the year.
For instance, around Christmas, you’re going to have people who will cut down and ship and sell Christmas trees. You’re going to have people being Santa in the mall. At Easter, you’ll have people being the Easter bunny in the mall.
There are certain jobs that come up at certain times of the year or just during certain seasons, and so, those seasonal cycles will reduce the need for certain jobs at certain times of the year.
And last, we have technological, and while technological unemployment has been going on for a long time, there’s been a bigger leap in that lately as technology has advanced very quickly. When advances in technology result in the elimination of certain jobs.
So, think way back just to how we’re talking about seasonal jobs. If you were a farmer and you could use a cotton gin to come and bail all your cotton, you would need to have as many workers working for so long.
Or if you had someone come in with a wheat thresher, you wouldn’t have to spend days or weeks threshing wheat and gathering it all up. You could work in one day and get it all done, so you wouldn’t need to hire any extra workers to come and help you do that. So, the technology reduced the need for certain jobs, or eliminated them, because even seasonal, they wouldn’t be needing anymore with the new technology.
And now, technology has advanced even further. So, I mean, going with telephones. You had telephone operators. They would actually sit and connect you from one line to the other. Well, now, telephones did that automatically through the radio waves.
You don’t actually need a person to do that for you. And as more and more things have become computerized, technology has eliminated certain jobs. Even when you go to the grocery store today. You can go do self-checkout and let the computer check you out without the need for an actual sales clerk to help you check out, to ring up your items, and take your money from you. It’s all done with the machine.
So, technological unemployment is when advances in technology eliminate certain jobs.
And so, this is the only one that isn’t going to really bring about a lot of new jobs, because people come up with new jobs when they create these items, because actually creating them is a job, and producing some of the new technology is a job, but it often eliminates more jobs than it produces, where seasonal, every season, certain jobs are still going to be needed.
Cyclical, you’ll have cycles where there are more unemployment and cycles where there aren’t. Structural, shifts in the economy, sometimes you’ll need more workers, sometimes you’ll need fewer workers.
And frictional is just a change in jobs, where you’re leaving one but you know you can get another, or you’re leaving one but you know you have one lined up in three months or six months, and you just have to wait out that frictional period of unemployment before you start your new position.
So, there are several different forms of unemployment, each one related to different areas or different sectors of the economy.