Population and Employment

Types of Unemployment

Some people would like to think that the unemployment rate might one day fall to 0%. In this situation there would be no people out of work – everyone who was looking for a job would have one.

Although this might sound like an excellent idea, the reality is that it isn’t possible. To understand why, you will need to learn about the following types of unemployment:

Cyclical Unemployment: When there is a lack of aggregate demand in the economy, some people will become unemployed. These people are said to be cyclically unemployed. You should recall that earlier in your study of Economics you learned about the Business Cycle. It is from this model that cyclical unemployment gets its name; when we experience an economic downturn (or a recession), the number of people unemployed will increase. These people are said to be cyclically unemployed.

When this problem occurs, the government will act to reduce the unemployment rate. You have also learned that the government is responsible for ensuring that the growth in the economy is stable; cyclical unemployment suggests that we are moving through a period of instability.

Structural Unemployment: While cyclical unemployment is all about the demand for labour, this time you need to think about the supply of labour. Workers and potential workers possess skills, and in looking for a job they are trying to sell those skills in the labour market. If no one will “buy” the skills that a person is offering (that is, if no one will employ them) then they are said to be structurally unemployed.

This is quite a common situation in the Australian market. For example, imagine that you gained skills as a computer programmer. If you did not keep these skills up to date, then it is possible that you would find it difficult to keep your job in the long term. Computer programming requirements change all the time, and as such it is important that a person in this field doesn’t allow the passage of time to result in a mis-match between the skills they can offer and those required by the market.

Seasonal Unemployment: Some people work in jobs that are seasonal, and as such when the season is over they will find it difficult to gain employment. Ski instructors, fruit pickers, surf lifesavers and the people who dress up as Santa Claus are all required at specific times of the year. Unless they move from one seasonal position to another, they will pass through periods of unemployment.

Frictional Unemployment: This type of unemployment occurs when a person has finished at one job, but has not yet started in their new position. The key defining characteristic of frictional unemployment is that they have already organised a new position. The only reason they are not working is because they are waiting for the new position to start.

Hard Core Unemployment: This group of people is generally described as being “unemployable”. They are people who are unlikely to ever have the possibility of working in Australia again. For example, a person with no skills or experience who has spent an extended period in jail would find it very difficult to gain employment.

It is clear from the preceding discussion that some types of unemployment are unavoidable. The government will act to try and eliminate cyclical unemployment whenever it occurs, but the other four are considered to be natural unemployment. Programs have been developed to try and minimise these situations, but they can never be entirely resolved.

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