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Types of Unemployment

Economists cite 3 main kinds

Erika Rasure is globally-recognized as a leading consumer economics subject matter expert, researcher, and educator. She is a financial therapist and transformational coach, with a special interest in helping women learn how to invest.

What Is Unemployment?

Cyclical unemployment, frictional unemployment, structural unemployment, natural unemployment, long-term unemployment, real unemployment, seasonal unemployment, classical unemployment, underemployment, frequently asked questions (faqs).

The Balance /

There are three main types of  unemployment : cyclical, structural, and frictional. Cyclical unemployment is, unfortunately, the most familiar. It occurs during a recession. The second two—structural and frictional—make up the natural unemployment rate.

This article summarizes nine types of unemployment. In addition to the four listed above, it explains long-term, seasonal, and classical unemployment. It also explains the terms "real unemployment" and "underemployment."

The Bureau of Labor Statistics (BLS) defines unemployment very specifically. To count as unemployed, out-of-work employees must have these three qualities:

• They aren't working, even part time or temporarily.
• They are available to work.
• They actively looked for work in the past four weeks.

This last point is important and often controversial. If someone has stopped looking for work, the BLS no longer counts them as being part of the labor force or as unemployed. But it does report them separately under the category of "marginally attached to the labor force." These are people who look for work in the past 12 months but not in the past four weeks.

To calculate the unemployment rate, divide the number of unemployed by the number in the labor force.

Cyclical unemployment is caused by the contraction phase of the  business cycle . That's when the demand for goods and services falls dramatically. It forces businesses to lay off large numbers of workers to cut costs.

Cyclical unemployment creates more unemployment. The laid-off workers have less money to buy the goods and services they need. That further lowers demand.

In the form of expansive monetary policy and fiscal policy, government intervention is required to stop the downward spiral. After the stock market crash of 1929, the government did not step in right away. This delay led to the Great Depression, which lasted 10 years and led to a 25% unemployment rate.

Frictional unemployment  occurs when workers leave their old jobs but haven't yet found new ones. Most of the time, workers leave voluntarily, either because they need to move or have saved enough money to allow them to look for a better job.

Frictional unemployment also occurs when students are looking for that first job or when mothers are returning to the workforce. It also happens when workers are fired or, in some cases, laid off due to business-specific reasons, such as a plant closure.

Frictional unemployment is short-term and a natural part of the job search process. In fact, frictional unemployment is good for the economy, as it allows workers to move to jobs where they can be more productive.

Structural unemployment exists when shifts occur in the economy that create a mismatch between the skills workers have and the skills needed by employers.

An example of this is an industry’s replacement of machinery workers with robots. Workers now need to learn how to manage the robots that replaced them. Those that don't learn need retraining for other jobs or face long-term structural unemployment.

A long recession often creates structural unemployment. If workers stay unemployed for too long, their skills have likely become outdated. Unless they are willing and able to take a lower-level, unskilled job, they may stay unemployed even when the economy recovers . If this happens, structural unemployment leads to a higher rate of natural unemployment. 

Natural unemployment consists of two of the three main types of unemployment: frictional and structural. It explains why there will always be some level of unemployment, even in a healthy economy. People will always be changing jobs, and sometimes they leave a job before finding a new one. There will always be some people with skills that are no longer needed.

The lowest level of unemployment was 2.5%, right after the Korean War.   Employers had a hard time finding workers. It occurred because the economy was in a bubble that soon burst and led to a recession. A healthy economy will have a natural unemployment rate of 4.5%-5%.

Long-term unemployment  occurs for those actively looking for a job for over 27 weeks.  The effects are devastating. Many employers overlook someone who's been looking for that long. The emotional and financial costs can be very damaging, according to a Pew Research Survey.   For example, 38% have lost self-respect. Almost 30% said their new job was worse than their old one. Sadly, 43% said they would have a hard time achieving their career goals.

Real unemployment  is not one of the types of unemployment, but it's an important term to understand. Many people argue that instead of the “official” unemployment rate, we should use an alternate rate. The Bureau of Labor Statistics calls it the "U-6" rate. Others call it the “real” unemployment rate because it uses a broader definition of unemployment.

It includes these two categories:

• Marginally attached workers : They haven't looked for work in the past four weeks, but have looked within the past year. Some of them become discouraged workers who have given up looking for work.
• Part-time workers : They would like a full-time job but can only find part-time employment.

You might also hear of seasonal unemployment as another type of unemployment. As its name suggests, seasonal unemployment results from regular changes in the season. Workers affected by seasonal unemployment include resort workers, ski instructors, and ice cream vendors. It could also include people who harvest crops. Construction workers are laid off in the winter in most parts of the country. School employees can also be considered seasonal workers.

The BLS does not measure seasonal unemployment. Instead, it adjusts its unemployment estimates to rule out seasonal factors.   This adjustment gives a more accurate estimate of the unemployment rate .

Classical unemployment is also known as “real wage unemployment” or “induced unemployment.” It’s when wages are so high that employers can't hire all the available workers. In other words, wages are higher than the laws of supply and demand would normally dictate.

It occurs in one of these three situations:

• Unions negotiate higher salaries and benefits.
• Long-term contracts set a wage that has become too high due to a recession.
• The government sets a minimum wage that's too high.

The result is that companies must pay more in wages per employee. So, they can afford fewer employees. Those that are laid off are victims of classical unemployment.

Underemployed workers have jobs, but they aren't working to their full capacity or skill level. This category includes those who are working part-time but would prefer full-time jobs. It also includes those who are working in jobs where they aren't being utilized. Underemployment is often caused by cyclical unemployment. During a recession, underemployed workers will take what they can to make ends meet.

Some definitions of underemployment include unemployment. Others include segments of society that are not included in the standard definition of unemployment but are counted in the real unemployment rate. Awareness of underemployment helps you understand the big picture of unemployment.

How do you reduce unemployment?

Effective strategies and policies for reducing unemployment depend heavily on which type of unemployment you're targeting. For instance, reducing structural employment requires training programs to provide new skills for displaced workers. Mitigating cyclical unemployment, on the other hand, often depends on fiscal and monetary interventions from the government.

Who pays for unemployment?

Unemployment is funded by state and federal taxes on employers that go toward unemployment insurance programs. State taxes vary, but the federal unemployment tax is 6% of the first $7,000 of each employee's wages each year.

How long can someone stay on unemployment?

The time limit for collecting unemployment benefits varies by state. Most states provide benefits for up to 26 weeks, but nine states provide less, and two provide more.

Federal Reserve Bank of St. Louis. " Unemployment ."

Bureau of Labor Statistics. " Who Is Counted as Unemployed? "

Bureau of Labor Statistics. " Who Is Not in the Labor Force? "

Bureau of Labor Statistics. " What Is the Unemployment Rate? "

Bureau of Labor Statistics. " Labor Force, Employment, and Unemployment, 1929-39: Estimating Methods ." Page 2, Table 1. As of July 1 of each year.

Federal Reserve of St. Louis. " Economic Lowdown ."

Bureau of Labor Statistics. " Monthly Labor Review ."

Bureau of Labor Statistics. " Long-term Unemployed ."

Pew Research Center. " Lost Income, Lost Friends - and Loss of Self-Respect ."

Bureau of Labor Statistics. " What Is Seasonal Adjustment? "

D.J. Daly and D.C. MacCharles. " Focus on Real Wage Unemployment ." Page 20.

D.J. Daly and D.C. MacCharles. " Focus on Real Wage Unemployment ." Page 24.

OECD. " Glossary of Statistical Terms: Underemployment ."

University of Notre Dame. " V. Policies To Reduce Unemployment ."

United States Department of Labor. " Unemployment Insurance Tax Topic ."

Center on Budget and Policy Priorities. " Policy Basics: How Many Weeks of Unemployment Compensation Are Available? "

• 7 Causes of Unemployment 2 of 16

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AP®︎/College Macroeconomics

Course: ap®︎/college macroeconomics   >   unit 2.

• Unemployment rate primer
• Natural, cyclical, structural, and frictional unemployment rates
• Worked free response question on unemployment
• Lesson summary: Unemployment

Unemployment

• Types of unemployment and the natural rate of unemployment
• (Choice A)   Employed workers lose their jobs and become unemployed A Employed workers lose their jobs and become unemployed
• (Choice B)   Paid workers leave their jobs to focus on full-time volunteer work instead of paid work B Paid workers leave their jobs to focus on full-time volunteer work instead of paid work
• (Choice C)   There is an increase in the number of people leaving jobs and going to college full-time C There is an increase in the number of people leaving jobs and going to college full-time
• (Choice D)   The retirement age is lowered, which leads more people to retire earlier D The retirement age is lowered, which leads more people to retire earlier
• (Choice E)   Fewer parents choose to stay at home with their children and instead take part-time jobs E Fewer parents choose to stay at home with their children and instead take part-time jobs

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5.3 Unemployment

Learning objectives.

• Explain how unemployment is measured in the United States.
• Define three different types of unemployment.
• Define and illustrate graphically what is meant by the natural level of employment. Relate the natural level of employment to the natural rate of unemployment.

For an economy to produce all it can and achieve a solution on its production possibilities curve, the factors of production in the economy must be fully employed. Failure to fully employ these factors leads to a solution inside the production possibilities curve in which society is not achieving the output it is capable of producing.

In thinking about the employment of society’s factors of production, we place special emphasis on labor. The loss of a job can wipe out a household’s entire income; it is a more compelling human problem than, say, unemployed capital, such as a vacant apartment. In measuring unemployment, we thus focus on labor rather than on capital and natural resources.

Measuring Unemployment

The Bureau of Labor Statistics defines a person as unemployed if he or she is not working but is looking for and available for work. The labor force is the total number of people working or unemployed. The unemployment rate is the percentage of the labor force that is unemployed.

To estimate the unemployment rate, government surveyors fan out across the country each month to visit roughly 60,000 households. At each of these randomly selected households, the surveyor asks about the employment status of each adult (everyone age 16 or over) who lives there. Many households include more than one adult; the survey gathers information on about roughly 100,000 adults. The surveyor asks if each adult is working. If the answer is yes, the person is counted as employed. If the answer is no, the surveyor asks if that person has looked for work at some time during the previous four weeks and is available for work at the time of the survey. If the answer to that question is yes, the person is counted as unemployed. If the answer is no, that person is not counted as a member of the labor force. Figure 5.4 “Computing the Unemployment Rate” shows the survey’s results for the civilian (nonmilitary) population for February 2012. The unemployment rate is then computed as the number of people unemployed divided by the labor force—the sum of the number of people not working but available and looking for work plus the number of people working. In February 2012, the unemployment rate was 8.3%.

Figure 5.4 Computing the Unemployment Rate

A monthly survey of households divides the civilian adult population into three groups. Those who have jobs are counted as employed; those who do not have jobs but are looking for them and are available for work are counted as unemployed; and those who are not working and are not looking for work are not counted as members of the labor force. The unemployment rate equals the number of people looking for work divided by the sum of the number of people looking for work and the number of people employed. Values are for February 2012. All numbers are in thousands.

There are several difficulties with the survey. The old survey, designed during the 1930s, put the “Are you working?” question differently depending on whether the respondent was a man or woman. A man was asked, “Last week, did you do any work for pay or profit?” A woman was asked, “What were you doing for work last week, keeping house or something else?” Consequently, many women who were looking for paid work stated that they were “keeping house”; those women were not counted as unemployed. The BLS did not get around to fixing the survey—asking women the same question it asked men—until 1994. The first time the new survey question was used, the unemployment rate among women rose by 0.5 percentage point. More than 50 million women are in the labor force; the change added more than a quarter of a million workers to the official count of the unemployed. [1]

The problem of understating unemployment among women has been fixed, but others remain. A worker who has been cut back to part-time work still counts as employed, even if that worker would prefer to work full time. A person who is out of work, would like to work, has looked for work in the past year, and is available for work, but who has given up looking, is considered a discouraged worker. Discouraged workers are not counted as unemployed, but a tally is kept each month of the number of discouraged workers.

The official measures of employment and unemployment can yield unexpected results. For example, when firms expand output, they may be reluctant to hire additional workers until they can be sure the demand for increased output will be sustained. They may respond first by extending the hours of employees previously reduced to part-time work or by asking full-time personnel to work overtime. None of that will increase employment, because people are simply counted as “employed” if they are working, regardless of how much or how little they are working. In addition, an economic expansion may make discouraged workers more optimistic about job prospects, and they may resume their job searches. Engaging in a search makes them unemployed again—and increases unemployment. Thus, an economic expansion may have little effect initially on employment and may even increase unemployment.

Types of Unemployment

Workers may find themselves unemployed for different reasons. Each source of unemployment has quite different implications, not only for the workers it affects but also for public policy.

Figure 5.5 “The Natural Level of Employment” applies the demand and supply model to the labor market. The price of labor is taken as the real wage, which is the nominal wage divided by the price level; the symbol used to represent the real wage is the Greek letter omega, ω. The supply curve is drawn as upward sloping, though steep, to reflect studies showing that the quantity of labor supplied at any one time is nearly fixed. Thus, an increase in the real wage induces a relatively small increase in the quantity of labor supplied. The demand curve shows the quantity of labor demanded at each real wage. The lower the real wage, the greater the quantity of labor firms will demand. In the case shown here, the real wage, ω e , equals the equilibrium solution defined by the intersection of the demand curve D 1 and the supply curve S 1 . The quantity of labor demanded, L e , equals the quantity supplied. The employment level at which the quantity of labor demanded equals the quantity supplied is called the natural level of employment . It is sometimes referred to as full employment.

Figure 5.5 The Natural Level of Employment

The employment level at which the quantity of labor demanded equals the quantity supplied is called the natural level of employment. Here, the natural level of employment is L e , which is achieved at a real wage ω e .

Even if the economy is operating at its natural level of employment, there will still be some unemployment. The rate of unemployment consistent with the natural level of employment is called the natural rate of unemployment . Business cycles may generate additional unemployment. We discuss these various sources of unemployment below.

Frictional Unemployment

Even when the quantity of labor demanded equals the quantity of labor supplied, not all employers and potential workers have found each other. Some workers are looking for jobs, and some employers are looking for workers. During the time it takes to match them up, the workers are unemployed. Unemployment that occurs because it takes time for employers and workers to find each other is called frictional unemployment .

The case of college graduates engaged in job searches is a good example of frictional unemployment. Those who did not land a job while still in school will seek work. Most of them will find jobs, but it will take time. During that time, these new graduates will be unemployed. If information about the labor market were costless, firms and potential workers would instantly know everything they needed to know about each other and there would be no need for searches on the part of workers and firms. There would be no frictional unemployment. But information is costly. Job searches are needed to produce this information, and frictional unemployment exists while the searches continue.

The government may attempt to reduce frictional unemployment by focusing on its source: information costs. Many state agencies, for example, serve as clearinghouses for job market information. They encourage firms seeking workers and workers seeking jobs to register with them. To the extent that such efforts make labor-market information more readily available, they reduce frictional unemployment.

Structural Unemployment

Another reason there can be unemployment even if employment equals its natural level stems from potential mismatches between the skills employers seek and the skills potential workers offer. Every worker is different; every job has its special characteristics and requirements. The qualifications of job seekers may not match those that firms require. Even if the number of employees firms demand equals the number of workers available, people whose qualifications do not satisfy what firms are seeking will find themselves without work. Unemployment that results from a mismatch between worker qualifications and the characteristics employers require is called structural unemployment .

Structural unemployment emerges for several reasons. Technological change may make some skills obsolete or require new ones. The widespread introduction of personal computers since the 1980s, for example, has lowered demand for typists who lacked computer skills.

Structural unemployment can occur if too many or too few workers seek training or education that matches job requirements. Students cannot predict precisely how many jobs there will be in a particular category when they graduate, and they are not likely to know how many of their fellow students are training for these jobs. Structural unemployment can easily occur if students guess wrong about how many workers will be needed or how many will be supplied.

Structural unemployment can also result from geographical mismatches. Economic activity may be booming in one region and slumping in another. It will take time for unemployed workers to relocate and find new jobs. And poor or costly transportation may block some urban residents from obtaining jobs only a few miles away.

Public policy responses to structural unemployment generally focus on job training and education to equip workers with the skills firms demand. The government publishes regional labor-market information, helping to inform unemployed workers of where jobs can be found. The North American Free Trade Agreement (NAFTA), which created a free trade region encompassing Mexico, the United States, and Canada, has created some structural unemployment in the three countries. In the United States, the legislation authorizing the pact also provided for job training programs for displaced U.S. workers.

Although government programs may reduce frictional and structural unemployment, they cannot eliminate it. Information in the labor market will always have a cost, and that cost creates frictional unemployment. An economy with changing demands for goods and services, changing technology, and changing production costs will always have some sectors expanding and others contracting—structural unemployment is inevitable. An economy at its natural level of employment will therefore have frictional and structural unemployment.

Cyclical Unemployment

Of course, the economy may not be operating at its natural level of employment, so unemployment may be above or below its natural level. In a later chapter we will explore what happens when the economy generates employment greater or less than the natural level. Cyclical unemployment is unemployment in excess of the unemployment that exists at the natural level of employment.

Figure 5.6 “Unemployment Rate, 1960–2011” shows the unemployment rate in the United States for the period from 1960 through 2011. We see that it has fluctuated considerably. How much of it corresponds to the natural rate of unemployment varies over time with changing circumstances. For example, in a country with a demographic “bulge” of new entrants into the labor force, frictional unemployment is likely to be high, because it takes the new entrants some time to find their first jobs. This factor alone would raise the natural rate of unemployment. A demographic shift toward more mature workers would lower the natural rate. During recessions, highlighted in Figure 5.6 “Unemployment Rate, 1960–2011” , the part of unemployment that is cyclical unemployment grows. The analysis of fluctuations in the unemployment rate, and the government’s responses to them, will occupy center stage in much of the remainder of this book.

Figure 5.6 Unemployment Rate, 1960–2011

The chart shows the unemployment rate for each year from 1960 to 2011. Recessions are shown as shaded areas.

Source : Economic Report of the President , 2012, Table B-42.

Key Takeaways

• People who are not working but are looking and available for work at any one time are considered unemployed. The unemployment rate is the percentage of the labor force that is unemployed.
• When the labor market is in equilibrium, employment is at the natural level and the unemployment rate equals the natural rate of unemployment.
• Even if employment is at the natural level, the economy will experience frictional and structural unemployment. Cyclical unemployment is unemployment in excess of that associated with the natural level of employment.

Given the data in the table, compute the unemployment rate in Year 1 and in Year 2. Explain why, in this example, both the number of people employed and the unemployment rate increased.

Case in Point: Might Increased Structural Unemployment Explain the “Jobless Recovery” Following the 2001 Recession?

A. Golden – the US$ 3 TRILLION HEIST, – CC BY-NC-ND 2.0.

The U.S. 2001 recession was mild by historical standards, but recovery in terms of increased employment seemed painfully slow in coming. Economists Erica Goshen and Simon Potter at the Federal Reserve Bank of New York think the reason for the slow recovery in jobs may have actually reflected structural changes in the U.S. economy. They argue that during the recession permanent rather than temporary layoffs predominated and that it takes longer for firms to hire workers into new positions than to hire them back into former jobs.

What is their evidence? When the layoff is temporary, the employer “suspends” the job, due to slack demand, and the employee expects to be recalled once demand picks up. With a permanent layoff, the employer eliminates the job. So, they looked at the contribution of temporary layoffs to the unemployment rate during the recent recession compared to the situation in the four recessions before 1990. In the earlier recessions, unemployment from temporary layoffs rose when the economy was shrinking and fell after the economy began to recover. In both the 1991 and 2001 recessions, temporary layoffs were minor. Then, the authors examined job flows in 70 industries. They classified layoffs in an industry as being cyclical in nature if the job losses during the recession were reversed during the recovery but structural if job losses for the industry continued during the recovery. Their analysis revealed that during the recession of the early 1980s, job losses were about evenly split between cyclical and structural changes. In the 1991 recession and then more strongly in the 2001 recession, structural changes dominated. “Most of the industries that lost jobs during the [2001] recession—for example, communications, electronic equipment, and securities and commodities brokers—[were] still losing jobs” in 2003. “The trend revealed . . . is one in which jobs are relocated from some industries to others, not reclaimed by the same industries that lost them earlier.”

The authors suggest three possible reasons for the recent increased role of structural change: (1) The structural decline in some industries could be the result of overexpansion in those industries during the 1990s. The high tech and telecommunications industries in particular could be examples of industries that were overbuilt before the 2001 recession. (2) Improved government policies may have reduced cyclical unemployment. Examination of macroeconomic policy in future chapters will return to this issue. (3) New management strategies to reduce costs may be promoting leaner staffing. For firms adopting such strategies, a recession may provide an opportunity to reorganize the production process permanently and reduce payrolls in the process.

Goshen and Potter point out that, for workers, finding new jobs is harder than simply returning to old ones. For firms, making decisions about the nature of new jobs is time consuming at best. The uncertainty created by the war in Iraq and the imposition of new accounting standards following the “Enron”-like scandals may have further prolonged the creation of new jobs.

Source : Erica L. Goshen and Simon Potter, “Has Structural Change Contributed to a Jobless Recovery?” Federal Reserve Bank of New York Current Issues in Economics and Finance 9, no. 8 (August 2003): 1–7.

Answer to Try It! Problem

In Year 1 the total labor force includes 22 million workers, and so the unemployment rate is 2/22 = 9.1%. In Year 2 the total labor force numbers 23.4 million workers; therefore the unemployment rate is 2.4/23.4 = 10.3%. In this example, both the number of people employed and the unemployment rate rose, because more people (23.4 − 22 = 1.4 million) entered the labor force, of whom 1 million found jobs and 0.4 million were still looking for jobs.

• For a description of the new survey and other changes introduced in the method of counting unemployment, see Janet L. Norwood and Judith M. Tanur, “Unemployment Measures for the Nineties,” Public Opinion Quarterly 58, no. 2 (Summer 1994): 277–94. ↵

Principles of Macroeconomics Copyright © 2016 by University of Minnesota is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License , except where otherwise noted.

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What Is Unemployment?

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• Measuring Unemployment

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The term unemployment refers to a situation where a person actively searches for employment but is unable to find work. Unemployment is considered to be a key measure of the health of the economy. The most frequently used measure of unemployment is the unemployment rate . It's calculated by dividing the number of unemployed people by the number of people in the labor force.

Key Takeaways

• Unemployment occurs when workers who want to work are unable to find jobs.
• High rates of unemployment signal economic distress while extremely low rates of unemployment may signal an overheated economy.
• Unemployment can be classified as frictional, cyclical, structural, or institutional.
• Unemployment data is collected and published by government agencies in a variety of ways.
• Many governments offer unemployed individuals a small amount of income through unemployment insurance, as long as they meet certain requirements.

Michela Buttignol

How is Unemployment Defined?

Understanding unemployment.

Unemployment is a key economic indicator because it signals the ability (or inability) of workers to obtain gainful work and contribute to the productive output of the economy. More unemployed workers mean less total economic production.

The unemployment definition doesn't include people who leave the workforce for reasons such as retirement, higher education, and disability.

Sign of Economic Distress

Unemployed workers must maintain at least subsistence consumption during their period of unemployment. This means that an economy with high unemployment has lower output without a proportional decline in the need for basic consumption.

High, persistent unemployment can signal serious distress in an economy and even lead to social and political upheaval.

Sign of an Overheating Economy

A low unemployment rate, on the other hand, means that the economy is more likely to be producing near its full capacity, maximizing output, driving wage growth, and raising living standards over time.

However, extremely low unemployment can also be a cautionary sign of an overheating economy, inflationary pressures, and tight conditions for businesses in need of additional workers.

Categories of Unemployment

While the definition of unemployment is clear, economists divide unemployment into many different categories. The two broadest categories are voluntary and involuntary unemployment. When unemployment is voluntary, it means that a person left their job willingly in search of other employment. When it is involuntary, it means that a person was fired or laid off and must now look for another job.

Types of Unemployment

Both voluntary and involuntary unemployment can be broken down into four types.

Frictional Unemployment

This type of unemployment is usually short-lived. It is also the least problematic from an economic standpoint. It occurs when people voluntarily change jobs. After a person leaves a company, it naturally takes time to find another job. Similarly, graduates just starting to look for jobs to enter the workforce add to frictional unemployment.

Frictional unemployment is a natural result of the fact that market processes take time and information can be costly. Searching for a new job, recruiting new workers, and matching the right workers to the right jobs all take time and effort. This results in frictional unemployment.

Cyclical Unemployment

Cyclical unemployment is the variation in the number of unemployed workers over the course of economic upturns and downturns, such as those related to changes in oil prices. Unemployment rises during recessionary periods and declines during periods of economic growth.

Preventing and alleviating cyclical unemployment during recessions is one of the key reasons for the study of economics and the various policy tools that governments employ to stimulate the economy on the downside of business cycles.

Structural Unemployment

Structural unemployment comes about through a technological change in the structure of the economy in which labor markets operate. Technological changes can lead to unemployment among workers displaced from jobs that are no longer needed. Examples of such changes include the replacement of horse-drawn transport with automobiles and the automation of manufacturing.

Retraining these workers can be difficult, costly, and time-consuming. Displaced workers often end up either unemployed for extended periods or leaving the labor force entirely.

Institutional Unemployment

Institutional unemployment results from long-term or permanent institutional factors and incentives in the economy.

The following can all contribute to institutional unemployment:

• Government policies, such as high minimum wage floors, generous social benefits programs, and restrictive occupational licensing laws
• Labor market phenomena, such as efficiency wages and discriminatory hiring
• Labor market institutions, such as high rates of unionization

Many governments offer unemployment insurance to certain unemployed individuals who meet eligibility requirements.

How to Measure Unemployment

The U.S. government uses surveys, census counts, and the number of unemployment insurance claims to track unemployment.

The U.S. Census conducts a monthly survey called the Current Population Survey (CPS) on behalf of the Bureau of Labor Statistics (BLS) to produce the primary estimate of the nation’s unemployment rate. This survey has been done every month since 1940.

The sample consists of about 60,000 eligible households. That translates to about 110,000 people each month. The Census changes a quarter of the sampled households each month so that no household is represented for more than four consecutive months. This is meant to strengthen the reliability of the estimates.

Many variations of the unemployment rate exist, with different definitions of who is an unemployed person and who is in the labor force.

The BLS commonly cites the U-3 unemployment rate (defined as the total unemployed as a percentage of the civilian labor force) as the official unemployment rate; however, this definition does not include discouraged unemployed workers who are no longer looking for work.

Other categories of unemployment include discouraged workers and part-time or underemployed workers who want to work full-time but, for economic reasons, are unable to do so.

History of Unemployment

Although the U.S. government began tracking unemployment in the 1940s, the highest rate of unemployment to date occurred during the Great Depression, when unemployment rose to 24.9% in 1933.

Between 1931 and 1940, the unemployment rate remained above 14% but subsequently dropped down to the single digits. It remained there until 1982 when it climbed above 10%.

In 2009, during the Great Recession, unemployment again rose to 10%. In April 2020, amid the COVID-19 pandemic, unemployment hit 14.8%. As of March 2024, the unemployment rate was 3.8%.

What Are the Main Causes of Unemployment?

There are many reasons for unemployment. These include recessions, depressions, technological improvements, job outsourcing, and voluntarily leaving one job to find another.

What Are the 3 Types of Unemployment?

Today's economists point to three main types of unemployment: frictional, structural, and cyclical. Frictional unemployment is the result of voluntary employment transitions within an economy. Frictional unemployment naturally occurs, even in a growing, stable economy as workers change jobs.

Structural unemployment can produce permanent disruptions due to fundamental and permanent changes that occur in the structure of the economy. These changes can marginalize a group of workers. They include technological changes, a lack of relevant skills, and jobs moving overseas to another country. Cyclical unemployment relates to the loss of jobs that occurs during changes in business cycles.

What Is the Strict Definition of Unemployment?

The official unemployment definition comes from the U.S. Bureau of Labor Statistics, which states that "people are classified as unemployed if they do not have a job, have actively looked for work in the prior four weeks, and are currently available for work."

Unemployment is when an individual who is not employed and is seeking employment, cannot find work. Unemployment is a key indicator of the health of an economy. A low unemployment rate represents a strong economy while a high unemployment rate represents a weak economy.

U.S. Bureau of Labor Statistics. “ How the Government Measures Unemployment ."

U.S. Bureau of Labor Statistics. " Concepts and Definitions (CPS) ."

U.S. Bureau of Labor Statistics. " Alternative Measures of Labor Underutilization for States, 2023 Annual Averages ."

U.S. Bureau of Labor Statistics. “ Table A-15. Alternative Measures of Labor Underutilization .”

U.S. Census Bureau. " Chapter D, Labor: Labor Force (Series D 1-682) ." Page 135.

Federal Reserve Bank of St. Louis, FRED. “ Unemployment Rate .”

• What Is Unemployment? Causes, Types, and Measurement 1 of 43
• What Does Termination of Employment Mean? 2 of 43
• What Is an Unemployment Claim? 3 of 43
• Unemployment Compensation: Definition, Requirements, and Example 4 of 43
• What Is Severance Pay? Definition and Why It's Offered 5 of 43
• The Layoff Payoff: A Severance Package 6 of 43
• 7 Considerations When You Negotiate Severance 7 of 43
• 7 Effective Ways to Prepare for a Layoff 8 of 43
• Unemployment Insurance (UI): How It Works, Requirements, and Funding 9 of 43
• How to Apply for Unemployment Insurance Now 10 of 43
• Who Doesn't Get Unemployment Insurance? 11 of 43
• What Was Private Unemployment Insurance? 12 of 43
• How to Pay Your Bills When You Lose Your Job 13 of 43
• Can I Access Money in My 401(k) If I Am Unemployed? 14 of 43
• All About COBRA Health Insurance 15 of 43
• Medical Debt: What to Do When You Can’t Pay 16 of 43
• Help, My Unemployment Benefits Are Running Out 17 of 43
• What Is the Unemployment Rate? Rates by State 18 of 43
• How Is the U.S. Monthly Unemployment Rate Calculated? 19 of 43
• Unemployment Rates: The Highest and Lowest Worldwide 20 of 43
• What You Need to Know About the Employment Report 21 of 43
• U-3 vs. U-6 Unemployment Rate: What's the Difference? 22 of 43
• Participation Rate vs. Unemployment Rate: What's the Difference? 23 of 43
• What the Unemployment Rate Does Not Tell Us 24 of 43
• How the Unemployment Rate Affects Everybody 25 of 43
• How Inflation and Unemployment Are Related 26 of 43
• How the Minimum Wage Impacts Unemployment 27 of 43
• The Cost of Unemployment to the Economy 28 of 43
• Okun’s Law: Economic Growth and Unemployment 29 of 43
• What Can Policymakers Do To Decrease Cyclical Unemployment? 30 of 43
• What Happens When Inflation and Unemployment Are Positively Correlated? 31 of 43
• The Downside of Low Unemployment 32 of 43
• Frictional vs. Structural Unemployment: What’s the Difference? 33 of 43
• Structural vs. Cyclical Unemployment: What's the Difference? 34 of 43
• Cyclical Unemployment: Definition, Cause, Types, and Example 35 of 43
• Disguised Unemployment: Definition and Different Types 36 of 43
• Employment-to-Population Ratio: Definition and What It Measures 37 of 43
• Frictional Unemployment: Definition, Causes, and Quit Rate Explained 38 of 43
• Full Employment: Definition, Types, and Examples 39 of 43
• Labor Force Participation Rate: Purpose, Formula, and Trends 40 of 43
• Labor Market Explained: Theories and Who Is Included 41 of 43
• What Is the Natural Unemployment Rate? 42 of 43
• Structural Unemployment: Definition, Causes, and Examples 43 of 43

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Home / Blog

8 Types of Unemployment: Understanding Each Type

January 19, 2022 

Tables of Contents

What Is Unemployment?

Understanding unemployment statistics, types of unemployment, ways of combating unemployment, understand unemployment and how to address it.

Unemployment is when a person who’s actively seeking employment can’t find work — but its effects go beyond any one individual looking for a job. Unemployment also has implications for families, employers, and the economy. The U.S. has regularly tracked unemployment as a measure of economic health since 1940, using the Current Population Survey (CPS): a household survey that polls individuals from various areas in each state to calculate the rate of unemployed individuals. The topic historically has taken on added prominence during times of economic upheaval; such times are often tied to unemployment rates and the factors driving them. The effects of COVID-19, for example, have thrust unemployment issues into the spotlight as the world adapts to pandemic-related disruptions.

Defining unemployment requires not only a look at the issue itself but also an examination of the many types of unemployment. It requires a consideration of what unemployment means to individuals and society.

Definition of Unemployment

The U.S. Bureau of Labor Statistics (BLS) classifies people as unemployed if they meet all the following criteria:

• They weren’t employed during the week of the CPS measurement.
• They were available to work, except for temporary illness.
• They attempted to find a job during the four-week period that ended with the week of the survey, or they were temporarily laid off.

Eligibility for unemployment benefits isn’t a BLS criterion for being classified as unemployed.

However, this basic answer to the question, “What is unemployment?” doesn’t tell the whole story. Breaking down different types of unemployment helps to identify the many factors that can lead to unemployment. Some measures of unemployment include additional groups, such as discouraged workers who aren’t looking for work and those who are working less than full time despite their desire to have full-time roles.

The two broadest categories of unemployment are voluntary and involuntary. People who are voluntarily unemployed left their jobs willingly in search of another job. Those who are involuntarily unemployed have been fired or laid off and now must find another job.

Effects of Unemployment

Because of unemployment’s far-ranging consequences, it’s important to understand joblessness, the different types of unemployment, and how to avoid becoming unemployed. Following are some of the groups that unemployment can affect:

Unemployed Workers and Families

When workers are unemployed, they lose wages and purchasing power , losses that could leave them unable to afford basic needs , such as quality healthcare and nutrition. Unemployed individuals no longer contribute to the economy by providing goods or services, and that also can lead to an erosion of their skills . Additionally, when people lose their jobs, they may face depression, anxiety, and loss of self-esteem; sometimes those issues can lead to divorce, domestic violence, or even suicide.

Unemployment costs employers time and money. When an employee leaves a job, whether voluntarily or involuntarily, the company incurs costs in finding, hiring, and training a replacement. Work Institute reports that in 2019 alone, volunteer employee turnover cost U.S. companies $630 billion. Additionally, turnover can cause damage to employee morale and, depending on the circumstances of the termination, damage to the corporate brand.

The Economy

Unemployment has the potential to plunge the economy into recession. Consumer purchases help fuel the U.S. economy — and when unemployed workers have less discretionary income, their consumption typically declines. Less spending power means less money to purchase goods that others have produced, potentially jeopardizing their jobs as well. Meanwhile, state and federal governments can’t collect the same level of income tax when unemployment rates are high, and they typically must spend more for unemployment benefits.

Widespread unemployment can lead to increases in crime, in some cases leading people to illegal activities to make ends meet or to fill idle time. Unemployment concerns can also lead to anti-government activism that feeds political instability. Additionally, a surplus of available workers who are competing for scarce jobs can allow for less-favorable working conditions.

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Unemployment affects individuals, employers, families, and society, according to Gallup, Investopedia, and Reference. It can have a negative impact on disposable income, economic output, employee morale, business costs, political stability, and crime rates.

The BLS tracks unemployment statistics through surveys, census counts, and the number of unemployment claims. Using the CPS, the BLS collects information from about 110,000 individuals each month. The survey includes people from various areas in each state and the District of Columbia, in an effort to reflect the entire U.S. population.

Each month, the BLS announces the total number of employed and unemployed people in the nation for the prior month. Its official measurement of unemployment divides the number of unemployed people by the labor force (the labor force is the total number of people in the nation who are available to work).

Significance of Unemployment Rates

Unemployment rates are a key economic indicator because they show the ability of workers to readily find gainful employment and contribute to economic output. High unemployment can signal an economy in distress. Generally, in the U.S., unemployment rates that reach 10% are considered high. In April 2020, at the onset of the COVID-19 pandemic, the unemployment rate reached 14.8% .

Low unemployment is generally an indicator of a strong economy, but unemployment figures that are too low can reflect an economy at risk of inflationary pressures . The Federal Reserve, the central bank of the U.S., points out that it’s impossible to know how low unemployment can drop without causing inflation. When unemployment rates dip too low, however, the lack of available workers can force companies to raise their wages and hire employees who aren’t as productive — which can mean productivity doesn’t cover the cost of new hires.

Measures of Unemployment

The BLS’s official unemployment rate typically receives widespread media attention, but that calculation of unemployment rates is just one of six measures (U-1 to U-6) that the BLS uses to inform economic policy and determine need for government aid.

To gain a complete picture of unemployment statistics, the BLS reviews factors such as:

• Number of employed people
• Number of unemployed people
• How people became unemployed
• How long people have been unemployed
• Unemployed people’s demographic information, such as gender, age, ethnicity, and education level
• Where unemployed people live
• Whether unemployment rates are increasing or decreasing

The official unemployment rate, showing the total number of unemployed people as a percentage of the labor force, is the U-3 measure.

Each BLS measure of what it calls “labor underutilization” is progressively more expansive. U-1 and U-2 define unemployment more narrowly than the official U-3 unemployment rate, so those rates are lower. U-1 and U-2 include only selected subsets of those who fit the official definition of unemployed.

U-4 to U-6, on the other hand, have broader criteria for labor underutilization, so those rates are higher than the official unemployment rate.

The most inclusive look at labor underutilization, U-6, is sometimes called the “real” unemployment rate. It includes people who are unable to find jobs as well as some who are no longer looking for work and those who are working fewer hours than they’d like.

For a clearer picture of the national labor market, the U.S. Bureau of Labor Statistics provides six measures of categories of unemployed people. U-1: Unemployed 15+ weeks. U-2: Lost job, completed temporary jobs. U-3: Unemployed. U-4: Unemployed, discouraged workers. U-5: Unemployed, discouraged workers, marginally attached to labor force. U-6: Unemployed, marginally attached to labor force, part-time employees .

Beyond voluntary and involuntary, some unemployment types take into account factors such as the strength of the economy, length of joblessness, and workplace changes. Following are eight types of unemployment, including definitions and examples:

1. Cyclical Unemployment

The term “cyclical unemployment” refers to the variation in the number of unemployed workers during cycles of economic strength and weakness. The nation’s gross domestic product (GDP), which is the value of goods and services a nation produces during a particular time period, is an indicator of these economic ups and downs. Government officials enact economic policies to stimulate the economy and stop this type of unemployment. When demand for a product or service declines, production also goes down. This creates less need for employers to hire people who are looking for jobs, causing the unemployment rate to increase. During the early stages of the COVID-19 pandemic, for example, people were confined to their homes, leading many businesses to shut down. During this economic downturn, many employees of those businesses weren’t needed and were left unemployed. The financial crisis of 2008 provides other examples of cyclical unemployment. One instance of this type of unemployment occurred when people began to encounter problems paying for their homes even as others failed to meet the more stringent mortgage qualifications. Demand for home construction plummeted, leaving workers in that field unemployed.

2. Frictional Unemployment

Frictional unemployment is the result of people voluntarily leaving their jobs . People who’ve resigned from their jobs and graduates seeking their first jobs need time to find employment, leaving them unemployed in the interim. Looking for a job, seeking a replacement employee, and finding the right employee for a job take time, but frictional unemployment isn’t necessarily bad. This type of unemployment usually is short term, and it’s present even in a healthy economy as people leave their jobs to seek new opportunities. The economy that emerged from the COVID-19 pandemic saw frictional unemployment, for example, when employers asked employees to return to work in person after they’d worked remotely for many months. Many employees who preferred to work from home voluntarily left their jobs in search of roles that better fit their needs.

3. Structural Unemployment

Fundamental changes in the economy and labor markets , such as evolving technology, government policies, and competition, can create structural unemployment. This means that while jobs are available, the people who could fill those roles either don’t have the right skills for them or aren’t in the right location. Manufacturing employees may contribute to structural unemployment, for example, when the requirements of their jobs change, leaving them unemployed because they no longer possess the right technological skills. Another example can occur when a business moves jobs to a location that’s too far away for employees to travel to, leaving those employees without work. Structural unemployment typically lasts longer than frictional unemployment, sometimes causing an erosion of those unemployed people’s skills or leaving them discouraged from looking for work.

4. Natural Unemployment

Natural unemployment is the combination of frictional and structural unemployment. It refers to the lowest unemployment level a healthy economy can sustain without causing inflation. This type of unemployment is ever present: People are always voluntarily looking for new jobs, causing frictional unemployment, and job skill requirements are always evolving, causing structural unemployment. It’s common for people to voluntarily leave jobs and for positions to move to other parts of the world, for example, driving the natural unemployment rate.

5. Long-Term Unemployment

The BLS classifies people who’ve been unemployed for 27 weeks or more and who’ve actively sought employment in the past four weeks as long-term unemployed. Cyclical and structural unemployment drive long-term unemployment. The 2008 recession, for example, caused a large increase in cyclical unemployment. Some individuals who were unemployed for a long time as a result of the economic downturn found themselves no longer fit for the skills the jobs required, driving structural unemployment. The repercussions of long-term unemployment for individuals can also have a negative effect on the economy. That can contribute to more cyclical unemployment — and lead to more long-term unemployment.

6. Seasonal Unemployment

Seasonal jobs are limited to a certain time period, sometimes leaving people who work in those jobs without employment after the season ends. Seasonal unemployment is the result of the decreased demand in labor that occurs at each season’s end , making the seasonal rate more predictable than other types of unemployment. Seasonal unemployment often occurs in tourist areas, where attractions often are open only during a certain time of the year. Theme parks, for example, employ workers only during their operational seasons, which in many climates is limited. A ski lodge’s employees generally work only when people are skiing. Agricultural workers’ jobs are timed to when crops are in season.

7. Classical Unemployment

Classical unemployment, also known as real-wage unemployment , occurs when real wages, or the cost of employing a worker, are too high. This circumstance leaves companies unable to afford all the workers who are available.

When real wages are too high, they’re greater than the benefit the employer gets from the labor an employee provides. Companies that can’t afford real wages decide not to hire as many people as are seeking jobs. An example of classical unemployment is when workers negotiate for a minimum salary that’s more than what a company can afford, making hiring those employees too costly for that company and leaving those workers unemployed.

8. Underemployment

Underemployment differs from unemployment in that it describes people who are working , but aren’t employed at their full capability. Measuring underemployment shows how effectively the economy is using the labor force’s skills, experience, and work availability. Following are the categories of underemployment:

• Visible underemployment. With visible underemployment, employees work part time despite their desire to work more hours. Underemployed people, such as office employees who can find only part-time roles, may work multiple jobs to earn the equivalent of a full-time salary.
• Invisible underemployment. When individuals who can’t find a job in their chosen field take a job that isn’t in line with their experience and skills, they represent invisible underemployment. Their work often pays less than a role that’s more in line with their background would pay. A person with an engineering degree working at a coffee shop is an example of invisible underemployment.

Both employees and employers have a role in combating unemployment. Workers can take steps to keep their current jobs while also staying ready for new opportunities. Businesses, meanwhile, can work to retain their employees.

The following approaches can enhance your chances of staving off unemployment, according to Entrepreneur, Fast Company, Garfinkle Executive Coaching, and Indeed Career Guide: demonstrate your value, volunteer for new assignments, consider entrepreneurship, monitor job search websites, network with professional contacts, and retool your skills.

Employee Tips for Combating Unemployment

Key actions can help put employees in the best position to retain their jobs . Following are some ways that individuals can demonstrate their value to their companies:

Tout Achievements

Individuals should make themselves visible to their management teams. They should demonstrate their value by regularly keeping management informed of on-the-job achievements.

 Show Flexibility

A willingness to learn new skills and take on new assignments is important for employees who want to show their flexibility. These actions are also evidence of a good attitude.

Become an Entrepreneur

Pursuing entrepreneurship can be a good way to provide employment for oneself, and eventually hire others. Conducting thorough research to uncover areas of potential growth and concentrating on outstanding customer service can help put a business on the path to success.

Search Online

Company websites, social media, news and trade publications, and industry associations are good sources of information about employers and trends. These sites provide information about who’s hiring, the mission and vision of potential employers, and which industries are growing.

Ask Personal and Professional Contacts

Asking contacts , such as friends, family, and professional referrals, for job suggestions and assistance is a good strategy for finding roles that are a good fit. They can offer details about their past and current employers and provide connections to employers who are hiring.

Use Job Search Services

Online job sites, college career services, recruitment agencies, job fairs, and state departments of labor can help with finding employment . In some cases, they can facilitate training for new skills.

Unemployment Resources

Tools and organizations can get unemployed individuals connected to benefits and a new job. The following are among those resources:

• gov — The federal government offers a help center with information such as unemployment resources, COVID-19 benefits, and hotline information.
• Best Job Search Websites — The Balance Careers reviews job sites to highlight the best.
• CareerOneStop — The U.S. Department of Labor offers tips for using online tools to make connections and research jobs.
• gov — The federal government provides unemployment information including links related to unemployment benefits, insurance coverage, workers’ compensation, and financial assistance.

Employer Tips for Combating Unemployment

Employers can help prevent unemployment by keeping their current employees on board. The following are some steps companies can take to retain workers:

Communicate with Employees

Gallup reported in 2019 that of workers who voluntarily left their jobs, 51% indicated that no one in management asked them about their job satisfaction or their role with the company in the three months before they left. Frequent conversations about employees’ experiences as well as the company’s expectations of them can help improve retention rates.

Encourage Employee Growth

Employers can encourage employees to stay by offering ways they can learn and grow. From training for new skills to new roles to pursue, good employees want challenges and equitable opportunities for moving up.

Unemployment has implications not only for those who can’t find work but also for families, employers, the economy, and society. A solid understanding of unemployment statistics, the types of unemployment, and ways to address the issue can help individuals prepare for situations that can lead to unemployment — whether voluntary or involuntary.

Infographic Sources

Entrepreneur, “How Entrepreneurship Can Solve the Problem of Unemployment”

Fast Company, “Want to Future-Proof Your Career? Be Prepared to Reinvent Yourself Constantly”

Gallup, “This Fixable Problem Costs Businesses $1 Trillion”

Garfinkle Executive Coaching, “Tips to Reduce Your Chances of Being Laid Off”

Indeed Career Guide, “10 Job Searching Resources”

Investopedia, “How the Unemployment Rate Affects Everybody”

Reference, “What Are the Effects of Unemployment on Society?”

U.S. Bureau of Labor Statistics, Alternative Measures of Labor Underutilization

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Types of Unemployment

Readers Question: What are the types of unemployment?

Firstly, we can make a distinction between:

• Supply-side unemployment (the natural rate of unemployment). These are usually microeconomic imbalances in labour markets.
• Demand-side unemployment (Unemployment caused by lack of aggregate demand in the economy). In recessions, we can expect demand deficient unemployment (sometimes called cyclical unemployment) to increase significantly.

Supply-side unemployment

• Frictional – This occurs when people are in between jobs. For example, a school-leaver may take some time to get his first job. There will always be some degree of frictional unemployment in an economy. Frictional unemployment
• Structural – This is unemployment due to occupational or geographical immobilities. Often occurs after structural change in the economy. E.g. closure of mines, left many miners struggling to find suitable work. For example, there may be jobs available in the service sector, but unemployed miners don’t have the relevant skills to be able to take the jobs. See: structural unemployment.
• Technological . This is very closely related to structural unemployment. It is the unemployment that may arise from the introduction of new technology which displaces workers. New technology will create new jobs in other areas (see: Luddite Fallacy), but those made redundant may lack the necessary skills and flexibility to seamlessly move from old job to the new  jobs.
• Geographical Unemployment . This occurs when unemployment is concentrated in certain areas. Jobs may be available in some prosperous areas (e.g. London) however, there may be difficulties for the unemployed to move to these areas (e.g. difficulty in finding accommodation, children in schools, e.t.c.) Note, geographical unemployment is often considered part of structural unemployment. See: Geographical unemployment

• Voluntary unemployment . This occurs when people prefer to remain on benefits rather than take a job, i.e. the unemployed refuse a job offer. Some debate exists over the extent of voluntary unemployment. But, arguably high benefits may encourage some to stay on benefits rather than take low paid jobs. See: voluntary unemployment
• Seasonal Unemployment . Unemployment may be higher during certain periods (e.g. out of tourist season) See: seasonal unemployment

Demand Side Unemployment

• Demand deficient unemployment – a fall in AD leads to a fall in economic output. Therefore firms employ fewer workers. This is sometimes referred to as ‘cyclical unemployment’ – the idea that unemployment rises and falls with changes in the economic cycle. See: demand deficient unemployment .

UK unemployment

• The spikes in unemployment in 1981, 1991 and 2011 are caused by economic recession and indicate demand deficient unemployment.
• The unemployment that occurs during periods of economic growth (e.g. 1993 to 2007) is due to supply-side factors – structural, frictional and real-wage unemployment.

Video on causes of unemployment

The Natural rate of unemployment

The natural rate of unemployment is the rate of unemployment – even when the labour market is in equilibrium. This is unemployment due to structural and frictional unemployment. A related concept is the NAIRU (non-accelerating inflation rate of unemployment). The key thing about the natural rate is that it is unemployment due to supply-side factors, and doesn’t include temporary demand-side factors.

This graph shows the actual unemployment rate and the ‘non-cyclical’ rate – which is an approximation of the natural rate. This shows that that the natural rate is much more stable than the headline rate, but can itself change. For example, the non-cyclical rate fell by 2020 – perhaps due to increased labour market flexibility.

• Causes of Unemployment
• Factors that cause the Natural Rate of Unemployment to change
• Reasons for youth unemployment

6 thoughts on “Types of Unemployment”

al the definitions are very easy n helpful for an average student i m grately thankful to u.

PLZ CAN U TELL TYPES OF UNEMPLOYENT LIKE VOLUNTARY AND UNVOLUNTARY

The economy, as all matters in the universe are of a cyclical nature. The only thing that is constant is continuous movement. The ups and downs in the economic cycle provide the needed energy for the economy to move forward. Like a car must stop for refueling tonce in a while the same way the economy has to slow down for recharging the batteries that make it run. Over the years , we have gotten very good in recharging the econolic batteries very fast and efficently. Refueling stops i.e. recessions have become shorter and shorter while periods of growth have become longer.

superb article on unemployment!

could you please give all the diagrams for all the employments and effects ?

Comments are closed.

• Government Exam Articles

Unemployment In India

The unemployment rate in India, amidst lockdown and restrictions on mobility, is 12.81% as of June 8th 2021 based on the data provided by the CMIE. Earlier, the unemployment rate in India shot up from 6.5 per cent in March 2021 to 8 per cent in April 2021, to 14.7% by May end, while the employment rate fell from 37.6 per cent in March to 36.8 per cent in April,  says the report of CMIE – Centre For Monitoring Indian Economy.

In 2020, the unemployment rate in India fell to 7% in September 2020 from the record high of 29% since the country went into lockdown from March 2020,  However, it later increased to 9.1% in December 2020.

The unemployment rate again declined to 6.5 per cent in January 2021 from 9.1 per cent in December 2020, while the employment rate surged to 37.9 per cent as compared to 36.9 per cent.

The lockdown to contain the coronavirus outbreak has forced many industries to shut down thus increasing unemployment across the country.

The unemployment in India stood at 6.1% in the financial year 2018 mentions the NSSO – National Sample Survey Organisation Report 2019. Candidates can check the detailed information on NSSO on the given link.

The topic of unemployment, the data related to unemployment in India and initiatives by the government to alleviate unemployment are important for aspirants preparing for competitive exams. It holds relevance in the general awareness section of various government exams like SSC exams, Bank exams, RRB exams, etc. 

Candidates can check the following links for General Awareness preparation:

• SSC General Awareness
• Bank General Awareness  

For candidates preparing for UPSC, unemployment in India can be asked in GS I or as an essay question. Therefore, this article will discuss detailed information on unemployment in India, types of unemployment, causes and government initiatives to control unemployment in India.

Candidates appearing for UPSC 2023 can go through the following links:

What is Unemployment?

Unemployment is a situation when a person actively searches for a job and is unable to find work. Unemployment indicates the health of the economy. 

The unemployment rate is the most frequent measure of unemployment. The unemployment rate is the number of people unemployed divided by the working population or people working under labour force.

Unemployment rate = (Unemployed Workers / Total labour force) × 100

National Sample Survey Organization (NSSO) defines employment and unemployment on the following activity statuses of an individual. NSSO, an organization under MoSPI – Ministry of Statistics and Programme Implementation measures India’s unemployment on three approaches:

• Daily Status Approach : unemployment status of a person under this approach is measured for each day in a reference week. A person having no gainful work even for one hour in a day is described as unemployed for that day.
• Weekly Status Approach: This approach highlights the record of those persons who did not have gainful work or were unemployed even for an hour on any day of the week preceding the date of the survey.
• Usual Status Approach : This gives the estimates of those persons who were unemployed or had no gainful work for a major time during the 365 days.

Types of Unemployment in India

In India, there are seven types of unemployment. The types of unemployment are discussed below:

• Disguised Unemployment : This is a type of unemployment where people employed are more than actually needed. Disguised unemployment is generally traced in unorganised sectors or the agricultural sectors.
• Structural Unemployment: This unemployment arises when there is a mismatch between the worker’s skills and availability of jobs in the market. Many people in India do not get job matching to their skills or due to lack of required skills they do not get jobs and because of poor education level, it becomes important to provide them related training. 
• Seasonal Unemployment: That situation of unemployment when people do not have work during certain seasons of the year such as labourers in India rarely have occupation throughout the year.
• Vulnerable Unemployment: People are deemed unemployed under this unemployment. People are employed but informally i.e. without proper job contracts and thus records of their work are never maintained. It is one of the main types of unemployment in India.
• Technological Unemployment : the situation when people lose their jobs due to advancement in technologies. In 2016, the data of the World Bank predicted that the proportion of jobs threatened by automation in India is 69% year-on-year.
• Cyclical Unemployment : unemployment caused due to the business cycle, where the number of unemployed heads rises during recessions and declines with the growth of the economy. Cyclical unemployment figures in India are negligible. 
• Frictional Unemployment : this is a situation when people are unemployed for a short span of time while searching for a new job or switching between jobs. Frictional Unemployment also called Search Unemployment, is the time lag between the jobs. Frictional unemployment is considered as voluntary unemployment because the reason for unemployment is not a shortage of jobs, but in fact, the workers themselves quit their jobs in search of better opportunities.

Aspirants preparing for UPSC Civil services exams or any government exams can check the relevant links given below to prepare more comprehensively –

Causes of Unemployment

The major causes of unemployment in India are as mentioned below:

• Large population.
• Lack of vocational skills or low educational levels of the working population.
• Labour-intensive sectors suffering from the slowdown in private investment particularly after demonetisation
• The low productivity in the agriculture sector plus the lack of alternative opportunities for agricultural workers that makes transition among the three sectors difficult.
• Legal complexities, Inadequate state support, low infrastructural, financial and market linkages to small businesses making such enterprises unviable with cost and compliance overruns.
• Inadequate growth of infrastructure and low investments in the manufacturing sector, hence restricting the employment potential of the secondary sector.
• The huge workforce of the country is associated with the informal sector because of a lack of required education or skills, and this data is not captured in employment statistics.
• The main cause of structural unemployment is the education provided in schools and colleges are not as per the current requirements of the industries. 
• Regressive social norms that deter women from taking/continuing employment.

Impact Of Unemployment

The unemployment in any nation have the following effects on the economy:

• The problem of unemployment gives rise to the problem of poverty.
• The government suffers extra borrowing burden because unemployment causes a decrease in the production and less consumption of goods and services by the people.
• Unemployed persons can easily be enticed by antisocial elements. This makes them lose faith in the democratic values of the country.
• People unemployed for a long time may indulge in illegal and wrong activities for earning money which increases crime in the country.
• Unemployment affects the economy of the country as the workforce that could have been gainfully employed to generate resources actually gets dependent on the remaining working population, thus escalating socio-economic costs for the state. For instance, a 1 % increase in unemployment reduces the GDP by 2 %.
• It is often seen that unemployed people end up getting addicted to drugs and alcohol or attempts suicide, leading to losses to the human resources of the country.

Candidates can check more relevant topics for competitive exams:

Government Initiative To Control Unemployment

Several policies have been initiated by the government to reduce the unemployment problem in the economy. The policies to reduce unemployment are highlighted below:

• In 1979 the government launched TRYSEM – Training of Rural Youth for Self-Employment The objective of this scheme was to help unemployed youth of rural areas aged between 18 and 35 years to acquire skills for self-employment. The priority under this scheme was given to women and youth belonging to SC/ST category.
• The Government launched the IRDP – Integrated Rural Development Programme (IRDP) in the year 1980 to create full employment opportunities in rural areas.
• A new initiative was tried namely RSETI/RUDSETI in 1982 jointly by Sri Dharmasthala Manjunatheshwara Educational Trust, Canara Bank and Syndicate Bank. The aim of RUDSETI, the acronym of Rural Development And Self Employment Training Institute was to mitigate the unemployment problem among the youth. Rural Self Employment Training Institutes/ RSETIs are now managed by Banks with active cooperation from the state and central Government.
• The Jawahar Rozgar Yojana (JRY) was started in April 1989 by merging the two existing wage employment programme i.e. RLEGP – Rural Landless Employment Guarantee Programme and NREP – National Rural Employment Programme on an 80:20 cost-sharing basis between the state and centre.
• MNREGA – Mahatma Gandhi National Rural Employment Guarantee Act launched in 2005 providing the right to work to people. An employment scheme of MGNREGA aimed to provide social security by guaranteeing a minimum of 100 days paid work per year to all the families whose adult members opt for unskilled labour-intensive work. For details on MNREGA check the link provided. 
• PMKVY – Pradhan Mantri Kaushal Vikas Yojana was launched in 2015. The objective of PMKVY was to enable the youth of the country to take up industry-relevant skill training in order to acquire a secured better livelihood. For further details on Pradhan Mantri Kushal Vikas Yojana check the given link. 
• The government launched the Start-Up India Scheme in 2016. The aim of Startup India programmes was to develop an ecosystem that nurtures and promotes entrepreneurship across the nation. Check detailed information on Startup India Scheme in the given link. 
• Stand Up India Scheme also launched in 2016 aimed to facilitate bank loans to women and SC/ST borrowers between Rs 10 lakh and Rs. 1 crore for setting up a greenfield enterprise. Details on Stand-Up India is given in the linked page.
• National Skill Development Mission was set up in November 2014 to drive the ‘Skill India’ agenda in a ‘Mission Mode’ in order to converge the existing skill training initiatives and combine scale and quality of skilling efforts, with speed. Check the National Skill Development Mission in detail. 

Like the above-mentioned schemes, there are various other schemes launched by the Government of India in order to address the social and economic welfare of the citizens and the nation.  The links of related schemes launched by the government are given below.

Candidates appearing for any competitive exams must keep up to date with information on PRASAD schemes. Aspirants can check in detail various Government Schemes which will be helpful for UPSC aspirants and for other competitive exams.

Unemployment in India – Important Questions

Q1.  Unemployment that occurs during the normal workings of an economy as people change jobs and move across the country is called _____.

• structural unemployment.
• natural unemployment
• frictional unemployment
• cyclical unemployment

Answer (3) Frictional unemployment

Q2.  The natural rate of unemployment is generally thought of as the

• the sum of frictional unemployment and structural unemployment
• the ratio of the frictional unemployment rate to the cyclical unemployment rate
• the sum of frictional unemployment and cyclical unemployment
• the sum of structural unemployment and cyclical unemployment

Answer (1) the sum of frictional unemployment and structural unemployment

Q3. A sales manager of an equipment manufacturing company loses his job because the company relocated the unit to another country is an example of ____ unemployment.

• Seasonal unemployment
• Frictional unemployment
• Cyclical unemployment
• Structural unemployment

Answer (4) Structural unemployment

Q4. When the rate of unemployment increases because of recession or depression. It is which type of unemployment?

• Cyclical Unemployment
• Frictional Unemployment

Answer (3) Cyclical Unemployment

Q5. Discouraged workers are not considered as a part of the labour force, so classifying them as unemployed would

• have an indeterminate impact on the unemployment rate
• not change the unemployment rate
• increase the unemployment rate
• decrease the unemployment rate

Answer (3) increase the unemployment rate

Candidates can check Previous Year Question Papers with solutions PDF to understand the type of questions asked in examinations related to such topics.

Check the links given below for competitive exam preparation:

Candidates can also check the relevant links:

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