Types of Unemployment (Cambridge (CIE) O Level Economics)

Types of Unemployment

• It is possible to classify the causes of unemployment into three categories

1. Structural unemployment occurs when there is a mismatch between jobs and skills in the economy

   • It usually happens as the structure of an economy changes e.g. the secondary sector is declining and the tertiary sector is growing

   • There is no longer a need for a specific type of worker e.g. ship builders in Glasgow

   • Many Western industries have relocated production to China causing structural unemployment in their economies

   • Unless workers receive help to retrain, they are often left unemployed or underemployed

2. Cyclical unemployment is caused by a fall of total (aggregate) demand in an economy

   • This typically happens during a slow down or recession

   • At least one of the components of real gross domestic product (rGDP) is falling (consumption, investment, government spending or net exports)

   • The demand for labour is a demand derived from the demand for goods/services

   • As output falls in the economy, firms lay off workers 

3. Frictional unemployment occurs when workers are between jobs

   • This is usually short-term unemployment

   • Workers have voluntarily left their previous job to search for another