Limited Time Offer: Save 10% on all 2021 and 2022 Premium Study Packages with promo code: BLOG10    Select your Premium Package »

Measures and Types of Unemployment

Measures and Types of Unemployment

Unemployment happens when individuals who are capable and willing to work at the current wage rates cannot acquire jobs. Similarly, when there are few available jobs in an economy, and yet the labor force of that economy is growing, then unemployment is inevitable.

Types of Unemployment

The three main types of unemployment include the ones discussed below.

Structural Unemployment

Structural unemployment happens when there is no demand for a particular type of worker. It is attributable to a mismatch between the expertise of individuals and what employers want. Technological advancement may also cause this kind of unemployment. This happens when individuals lack requisite skills to operate machinery, and this renders them obsolete.

Examples of structural employment include newspaper employees, such as printing clerks and delivery route workers. With the advent of the internet, many newspaper workers were laid off.

Frictional Unemployment

Frictional unemployment happens when workers change jobs or are transitioning from one job to another. The mismatch can be in relation to location, skills, or payment. This unemployment is voluntary and is based on the value a worker accords to his work and salary.

New entrants and/or re-entrants into the labor market who are yet to find a job also fall into this unemployment category.

Cyclical Unemployment

Cyclical unemployment depends on cycles that occur because of economic growth and decline. If a country goes into recession, many people naturally lose their jobs. The aggregate demand for jobs is higher than its supply because fewer goods and services are produced. Hence, fewer workers are needed.

Voluntary Unemployment

This occurs when individuals, out of their free will, refuse to work either because the existing wages are not up to their standard or because they prefer staying unemployed for other reasons.

Measures of Unemployment

The following are measures are used to gauge unemployment.

Unemployment Rate

The unemployment rate measures the number of people who do not have a job but are willing to work at the existing wage rate using statistical computation or estimations. Thus, the unemployment rate is a percentage of the total labor force.

All types of unemployment identified above form a portion of the unemployment rate. Data for measurement can be collected using different methods, such as using a household survey to identify unemployed individuals, making estimations based on the economic output, etc.

Overall Payroll Employment and Productivity Indicators

Monitoring the payroll structure of businesses can be used as a measure of unemployment. When the payroll shrinks, it is an indication that the economy is experiencing a decline in growth and productivity. In contrast, a payroll expansion or recovery is an indication of an economic boom.


A car salesman in Bogota lost his job 3 months ago because of a recession in Columbia. Since then, he has handed his resume to 10 other car dealerships but he was never called back for a job interview.  This situation most likely refers to:

A. frictional unemployment.

B. cyclical unemployment.

C. structural unemployment.


The correct answer is B.

The question states that the worker lost his job because of a recession. Cyclical unemployment depends on cycles that occur because of economic growth and decline. If a country goes into recession, many people naturally lose their jobs.

Featured Study with Us
CFA® Exam and FRM® Exam Prep Platform offered by AnalystPrep

Study Platform

Learn with Us

    Subscribe to our newsletter and keep up with the latest and greatest tips for success
    Online Tutoring
    Our videos feature professional educators presenting in-depth explanations of all topics introduced in the curriculum.

    Video Lessons

    Sergio Torrico
    Sergio Torrico
    Excelente para el FRM 2 Escribo esta revisión en español para los hispanohablantes, soy de Bolivia, y utilicé AnalystPrep para dudas y consultas sobre mi preparación para el FRM nivel 2 (lo tomé una sola vez y aprobé muy bien), siempre tuve un soporte claro, directo y rápido, el material sale rápido cuando hay cambios en el temario de GARP, y los ejercicios y exámenes son muy útiles para practicar.
    So helpful. I have been using the videos to prepare for the CFA Level II exam. The videos signpost the reading contents, explain the concepts and provide additional context for specific concepts. The fun light-hearted analogies are also a welcome break to some very dry content. I usually watch the videos before going into more in-depth reading and they are a good way to avoid being overwhelmed by the sheer volume of content when you look at the readings.
    Kriti Dhawan
    Kriti Dhawan
    A great curriculum provider. James sir explains the concept so well that rather than memorising it, you tend to intuitively understand and absorb them. Thank you ! Grateful I saw this at the right time for my CFA prep.
    nikhil kumar
    nikhil kumar
    Very well explained and gives a great insight about topics in a very short time. Glad to have found Professor Forjan's lectures.
    Great support throughout the course by the team, did not feel neglected
    Benjamin anonymous
    Benjamin anonymous
    I loved using AnalystPrep for FRM. QBank is huge, videos are great. Would recommend to a friend
    Daniel Glyn
    Daniel Glyn
    I have finished my FRM1 thanks to AnalystPrep. And now using AnalystPrep for my FRM2 preparation. Professor Forjan is brilliant. He gives such good explanations and analogies. And more than anything makes learning fun. A big thank you to Analystprep and Professor Forjan. 5 stars all the way!
    michael walshe
    michael walshe
    Professor James' videos are excellent for understanding the underlying theories behind financial engineering / financial analysis. The AnalystPrep videos were better than any of the others that I searched through on YouTube for providing a clear explanation of some concepts, such as Portfolio theory, CAPM, and Arbitrage Pricing theory. Watching these cleared up many of the unclarities I had in my head. Highly recommended.