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Three Types of Unemployment: Cyclical, Frictional & Structural

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  • 0:10 Types of Unemployment
  • 1:23 Cyclical Unemployment
  • 2:11 Frictional Unemployment
  • 2:56 Structural Unemployment
  • 5:07 Lesson Summary
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Lesson Transcript
Instructor: Jon Nash

Jon has taught Economics and Finance and has an MBA in Finance

If you've ever lost your job after the holiday season, you've experienced at least one type of unemployment. In this lesson, explore the three types of unemployment including cyclical, frictional, and structural using real-world examples.

Types of Unemployment

There are three major types of unemployment including cyclical, frictional, and structural. Let's take a look at each one of them through the eyes of workers in the town of Ceelo. As a matter of fact, I'd like to introduce you to a few of them and then find out what type of unemployment they're experiencing.

Cindy just graduated from college, and she's looking for work by scanning job sites, reading newspaper listings and attending job fairs. Good for you, Cindy. Cindy's dad, Matt, is a manufacturing worker in Ceelo who loves to pull levers and wear hard hats. Matt's Uncle Fred works as a temporary Santa Claus each holiday season; in particular, he loves to work at commodities trading firms on Wall Street. Fred's brother Frohm is a high school gym teacher who is desperately trying to teach kickboxing to the school's guinea pigs with the help of students. He was hired as a second gym teacher last year.

Okay, so this is the town of Ceelo, and these are the workers we're talking about. Now, let's talk about the economy.

Cyclical Unemployment

Over time, the economy experiences many ups and downs. That's what we call cyclical unemployment because it goes in cycles. Cyclical unemployment occurs because of these cycles. When the economy enters a recession, many of the jobs lost are considered cyclical unemployment.

For example, during the Great Depression, the unemployment rate surged as high as 25%. That means one out of four people were willing and able to work, but could not find work! Most of this unemployment was considered cyclical unemployment. Eventually, unemployment came down again. As you can see, at least part of unemployment can be explained by looking at the cycles, or the ups and downs of the economy.

Frictional Unemployment

Frictional unemployment occurs because of the normal turnover in the labor market and the time it takes for workers to find new jobs. Throughout the course of the year in the labor market, some workers change jobs. When they do, it takes time to match up potential employees with new employers. Even if there are enough workers to satisfy every job opening, it takes time for workers to learn about these new job opportunities, and for them to be considered, interviewed and hired.

When Cindy graduates from college, she begins looking for work. Let's say it takes her four months to land a new job. During this time, she is frictionally unemployed.

Structural Unemployment

Let's talk about structural unemployment, which occurs because of an absence of demand for a certain type of worker. This typically happens when there are mismatches between the skills employers want and the skills workers have. Major advances in technology, as well as finding lower costs of labor overseas, lead to this type of unemployment.

When workers lose jobs because their skills are obsolete or because their jobs are transferred to other countries, they are structurally unemployed. It's structural unemployment because the structure of the economy has changed, not because of the regular ups and downs of it.

For example, Matt loses his job because the manufacturing company he worked for in Ceelo moves overseas, and some of the factory workers left at home are not needed because of new high-tech gear that was recently installed. So, Matt becomes structurally unemployed. Most of the new jobs require a college degree or new skills, so Matt decides to go back to school. It's a very common example of what's happened in the economy, especially during challenging times.

One type of structural unemployment is seasonal unemployment. Seasonal unemployment happens when the structure of the economy changes from month to month. Some jobs close down because the seasons change. Here are some examples:

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