Unemployment has become one of the most talked about socio-economic challenges in the global society.
The world can tell of the myriad consequences of an unemployed population. Crime rates are always expected to skyrocket, the economy suffers a blow of reduced demand for goods and services, low or absolute zero income levels drain savings and investments.
Generally unemployment is costly for everyone, but mostly the government, as it has to earmark a lot of resources to provide for the unemployed and at the same time finance policies and projects aimed to reduce unemployment.
This phenomenon has challenged the world enough for economists to turn it upside-down and come up with revelations as to the distinctions between the different forms of unemployment. However, before we look at the types of unemployment, we might want to know how unemployment forms.
Causes of Unemployment
- Demand shortages – during certain periods in the economic cycle, businesses suffer from reduced demands for goods produced, forcing them to lay off sections of the workforce. This spreads out across the economy, resulting in widespread and endemic unemployment.
- Technology and skills shortage – Changes in technology have often transcended the current skills-level for a majority of the population. With technology available, employers will raise the bar of skills standards and demand more from employees. Many will be laid off and more will unsuccessfully hunt for jobs.
- New job market entries – Fresh graduates are introduced into the job market as unemployed people, that is before they finally get their hands on a job. Individuals that were formerly unemployed re-entering the job market also pose unemployment additions. These include mothers and the sick.
- Relocation and outsourcing – Either people may geographically move away from their jobs, or the jobs move away from them through outsourcing. Why the latter happens is an entire topic in employment studies.
- Wage and restrictions in the job market. Governments and unions impose significant pressure on employers, who have the independence to make employment choices that are critical for job seekers. Raising the minimum wage is a common initiative governments take supported by work unions. However, these are additional costs on employers and once they become unbearable unemployment will point to the upward trajectory.
- Voluntary exits – People will voluntarily leave the job market for their own reasons such as sickness, to pursue further studies, and to look for other jobs. This still is counted as unemployment.
The different types of unemployment, as will be explained below, boil down from the above causes of unemployment. Let us look at them.
Types of Unemployment (Major and Minor)
There are as many as eight different types of unemployment, three of which are the most renowned and common in unemployment demographics.
- Structural Unemployment
Structural unemployment revolves around the skills possessed by potential employees in the labour market, and the standards and availability of job opportunities available for them.
Structural unemployment is, therefore, a form of unemployment that results from differences in the skills possessed by the job market, and the level of skills required and the jobs available for them in that particular geographical setting. The following are some causes of structural unemployment:
- Advanced technology that displaces human labor, and insufficient skills to apply and operate these technologies. For instance, the introduction of AI displaced laborers in the professional writing industry, deeming them unemployed. The acceptable standard of writers now would be those that decipher how to apply AI in writing.
- Outsourcing and offshoring relocates the job from the workers, rendering them structurally unemployed. Outsourcing also means that the skills owned by the former employees could be worthless in that geographical setting upon the exit of the employer.
- Substandard education – current curricula may not equip workers with the standard skills for the job market. Moreover, the market keeps transforming, and laborers even if employed should keep learning to keep on course with advances in skills levels.
Structural unemployment is catastrophically long-term, and may require similar long-term solutions. Technology can not be stopped from advancing, and employees only have to upskill. Governments are responsible for most of outsourcing and offshoring, and should preserve conducive ecosystems to maintain employers.
- Cyclical Unemployment
Over time the global economy has taken a rather wavy curve, undergoing boom and recess. During boom, the economy is significantly healthy and demand levels are high. Production volumes will also rise, requiring more employees and hence a reduced unemployment rate.
Conversely, economic recess imposes a contraction of the economy, sinking demand levels. The reduced production volumes will prompt employers to cut their wage bills to cloth. Cyclical unemployment leads to further fall in demand and further unemployment.
The scores that’ll be laid off will contract the economy further, reducing demand, and subsequently more employees will be dismissed.
This is what happened with global economic catastrophes like the Great Depression of 1930 and the Financial Crisis of 2008. The last resort to remedy cyclic unemployment is often to repair the economy through fiscal and monetary measures.
- Frictional Unemployment
Frictional unemployment consists of unemployment during periods of transition from one job to another.
As part of natural unemployment, frictional unemployment is anticipated and evidenced even in the healthiest of economies. This is due to the fact that people do not have to be fired out of economic hardships in order to be frictionally unemployed.
Actually, some literature have described frictional unemployment as due to voluntary exits from job markets in search of greener pastures. The causes of frictional unemployment are thus as below:
- Voluntary transitions – Individuals will resign from their current jobs in search for better opportunities. This period of transition accounts to frictional unemployment.
- Involuntary transitions – After getting fired out of a myriad of possible reasons, the laid off employees will look for new jobs, a period which also accounts to frictional unemployment.
- New entrants – Graduates who enter the job market and briefly conduct job hunts are also counted as unemployed.
- Ren-entrants – These are people who were formerly unemployed but quit for other commitments such as maternity, treatment, and further studies. These people are unemployed the periods when they start once again to seek employment.
Frictional unemployment is not a catastrophe, and is healthy for any economy. Interestingly, frictional unemployment is advantageous as individuals seek jobs where they can fully unleash their potential. In as much as it is counted as unemployment, frictional unemployment does not really require any remedies.