Types of Unemployment - Video Tutorials & Practice Problems

Frictional, Structural, and Cyclical Unemployment

Alright now let's discuss the three types of unemployment, frictional structural and cyclical unemployment, let's check it out. Let's start here with frictional unemployment. So frictional unemployment, this is a short term unemployment that arises when workers are in between jobs. So I like to think of it as the friction that occurs between jobs, right? We got to try and remember each of these separate separately. So it's the friction that occurs between jobs, right? The free that's occurring between two jobs. So what happens is when someone leaves a job or they're laid off, Well they start the job search process right there, it's the process of looking for a suitable job. Each worker is gonna have some set of skills and they're gonna need to find a job that matches that set of skills right? And along with that we've got seasonal unemployment that's included here in frictional unemployment because it's it's in between jobs, right? If you have a job as a santa's elf and christmas season's over, well you got to find another job, you're in between two jobs, that's frictional unemployment. So we say that frictional unemployment is okay, We say it's okay it's gonna occur because it's just finding a good match for a job, We want all of the workers to have good matching jobs, right? We want their skills to match what they're doing. So when you have a good job it increases a good match, increases job satisfaction, a good job match. So we want people to be as productive as possible in a job they're good at, so we say that frictional unemployment is okay in that situation. So notice this is an example of why um frictional unemployment exists. Let's say there's a job opening for a pastry chef right? There's a job opening for a pastry chef. However you're an unemployed electrical engineer. Well that's not a good fit for you right? You should be looking for an engineering job even though that there is this job available. Well that job will be better filled by someone who's trained as a chef. So what happens is with frictional unemployment, workers still have marketable skills. Okay and that's important when it comes to frictional unemployment. Actually gonna highlight that here. Workers still have marketable skills when it comes to frictional unemployment. So they're just in between two jobs of using those skills that they have. However let's look at structural unemployment here, structural unemployment is a bigger problem. This is a longer term unemployment from the mismatch of worker skills to the available jobs. So now we're saying that um the skills that workers have built up there, the human capital that they have. What they what they know how to do is not really relevant anymore. So an example of that is when there's a lot there were a lot of two D animators in a three D. World, right? Where Pixar movies started kicking off, You don't see so many two D. Animations anymore. Right? You don't see movies that are just cartoons as much as you see movies that are kind of three D. Little creatures running around. So those two D. Animators found themselves in a tough spot, right? Because they spent their life learning how to draw and learning how to do two D. Animation. And those skills weren't as marketable anymore. Right. So structural unemployment we say is a serious problem because now we're finding workers that their their skills are not marketable. So that's a bigger problem. Right? The workers skills are not marketable when it comes to structural unemployment. So this is a changing job structure. Right? This is when we when we say structural unemployment it's because the job structure of the economy has changed. So now the skills the workers have are no longer able to find jobs with the skills that they have. So what's gonna happen is there's gonna need additional training education or just relocate to a new place where their their skills are suitable. Okay. So structural unemployment is is worse because now the worker skills are unmarketable. Finally we have cyclical unemployment. Now cyclical cyclical unemployment is unemployment caused by the business cycle. So the business cycle that's where we get cyclical and that it comes during a recession specifically a recession. Is is where we have more unemployment. The economy is on a downturn, there's less production and higher unemployment during a recession. Okay so what we saw is cyclical unemployment, it's cyclical, right? We're gonna lose some jobs, we're gonna have more unemployment. But then the recession will end and that unemployment will go away, people will get their jobs back. Excuse me. So, What we saw in this last reception during 2008, there were a lot of companies laid off workers, but as the economy recovered, they rehired those workers, people got jobs back again. So this cyclical unemployment, it's part of the business cycle, right? It's gonna happen as we go into recessions, as this business cycle continues to do its loop and it comes from the lack of demand for the goods and services, right? So if if we're thinking of like ford Motor come, the economy is in a recession, nobody's buying cars. Well, they don't need to be producing cars. So why are they going to keep all these workers in their factories if they're not even producing cars? So there's a lack of demand? Well then there's a lack of demand for the the workers as well. Cool. Let's pause right here, and we're gonna discuss the idea of full employment natural unemployment a few more key terms when it comes to unemployment. But what you what you want to know here is that these are the three types of unemployment and you're gonna want to be able to distinguish between the three frictional structural and cyclical. Cool. Let's pause and we'll continue in the next

Definition of Full Employment

Alright. So what we're going to say is that it's unavoidable to have at least some frictional and structural unemployment in any economy, there's going to be frictional unemployment because there's gonna be workers in between jobs doing a job search, looking for new jobs and some structural unemployment as the economy changes as the technologies improve, we're going to see that there is going to be inevitably some structural unemployment. So when we say our economy is at full employment, that doesn't mean everybody has a job. It's an economy where cyclical unemployment is zero, okay, cyclical is zero. When when we're at full employment, that means we're not in any sort of recession. Our economy is on the upturn and there's no cyclical unemployment due to the business cycle due to being in a recession. So, although its term full employment, that doesn't mean everyone has a job. That's basically that the only unemployment we're seeing is this natural unemployment. We're only experiencing the frictional and structural unemployment, No cyclical unemployment when we're at full employment. Okay. However, when we want to calculate what is the actual amount of unemployment, Well, that's gonna take into all three. We're gonna have the frictional, structural and cyclical, which is just as we have here, it's equal to natural plus cyclical, right? Because natural these two right here, these two, right here, our natural those are the natural unemployment. So naturally that plus the cyclical is going to be actual unemployment. So when we're at full employment, we are reaching what's called our potential GDP, if everyone who basically should have a job right now, if we're at that full employment, what we're gonna be producing as much as we really can, the potential of our economy, we're reaching our GDP potential. Now the difference between the actual GDP, what's actually being produced and the potential if we were at full employment, well that's called the G. D. P. Gap. So when we take the difference between actual GDP and what we would be producing at full GDP or at full employment, that is the GDP gap. Now, these these equations here aren't as important as the rest of this page, knowing about the frictional, structural and um cyclical unemployment and how that how we calculate full employment here. Alright, so generally when it comes to this topic which you're gonna want to do is be able to have some sort of example where they say this guy doesn't have a job and he's looking for a job. What kind of unemployment is he experiencing? Well that's generally how we're gonna be dealing with these types of problems. So I have some practice problems set up for you on the next page. Let's go ahead and try those. Now

George recently graduated from college with a Master's Degree in Basket Weaving. During the few months he spends searching for a stable basket weaving job, he is experiencing:

• A. Structural unemployment
• B. Frictional unemployment
• C. Natural Unemployment
• D. Cyclical Unemployment

Workers at an automobile assembly plant are laid off because the economy is weak and the demand for automobiles has fallen. What type of unemployment best describes the workers' situation?

• A. Structural unemployment
• B. Frictional unemployment
• C. Natural Unemployment
• D. Cyclical Unemployment

After spending several months searching for a job using his Basket Weaving degree, George realizes that there are not many available jobs for basket weavers. George decides to get new technical training to apply his basket weaving skills to integrated basket design using AutoCAD. During this time, George is likely experiencing:

• A. Structural unemployment
• B. Frictional unemployment
• C. Natural Unemployment
• D. Cyclical Unemployment