Types and Measures 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.

Question

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; or

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.

Reading 15 LOS 15d:

Describe types of unemployment and compare measures of unemployment