Frictional unemployment
It represents unemployment that occurs naturally during the normal workings of an economy. It can occur for a variety of reasons such as people changing jobs, moving across the country, searching for new opportunities or taking their time after they enter the labour force to find appropriate jobs. It arises because it takes time for workers to be matched with suitable jobs and during this time, workers engaged in a job search will be registered as unemployed. The problem is that information is imperfect:
• employers are not fully informed about what labour is available .
• workers are not fully informed about what jobs are available .
To remedy frictional unemployment – better job information provided by job centres, local and national newspapers.
Structural unemployment
This arises from changes in the pattern of demand and supply in the economy
• pattern of demand – declining demand – change in consumer tastes , goods out of fashion , competition from other industries etc.
• pattern of supply – methods of production – new techniques of production.
• unemployment may result from labour-saving techniques of production or a whole new technology which requires fewer workers with different skills.
• people cannot immediately take up jobs in other parts because there is a mismatch between workers’ skills and job requirements due to
• not having sufficient education
• lack of skills and training E.g. when products such as the black and white television become obsolete, workers engaged in their production may become unemployed.
Cyclical unemployment
This arises because the economy is in recession and there is deficiency of demand Unemployment increases during recession and decreases during expansion.
In any economy, the actual rate of unemployment = natural rate of unemployment + cyclical rate of unemployment. The natural rate of unemployment is defined as the rate of unemployment that prevails when output and employment are at the full level of employment level. Therefore, even though the economy is operating at the full employment level, there will still be people who are facing frictional and structural unemployment. In other words, natural rate of unemployment = frictional + structural unemployment.
