Unemployment happens when individuals who are capable and willing to work at the current wage rates are not able to acquire jobs. When there are few available jobs in an economy and yet the labor force of that economy is growing, then unemployment is inevitable. The three main types of unemployment include:
Structural unemployment happens when there is no demand for a particular type of worker. It occurs because there is a mismatch between the expertise of the individuals and what the employers want. Advanced technology may also cause this kind of unemployment because many individuals lack skills in operating machinery and this renders them obsolete.
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 force but yet to find a job also fall into this category of unemployment.
Cyclical unemployment depends on cycles that occur because of economic growth and decline. If a country goes into recession, many people 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.
This occurs when individuals, out of their free will, are refusing 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 unemployment rate measures the number of people who do not have a job but are willing to work at the existing wage rate by using statistical computation or estimations. The unemployment rate is a percentage of the total labor force. All the type of unemployment identified here individually forms a fraction of the unemployment rate. Data for measurement can be collected using different methods, such as the use of a household survey to identify unemployed individuals, making estimations on the basis of 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 whereas a payroll expansion or recovery is an indication of an economic boom.
Reading 17 LOS 17d:
Describe types of unemployment and compare measures of unemployment