🤖 Technological change
New machines or software do work that people used to do. Fewer workers are needed in that industry, and the new jobs often need different skills.
Employment and Unemployment » Types of Unemployment
What you'll learn this session
Study time: 30 minutes
Cambridge spec: 4.6.3
- The four types of unemployment: frictional, structural, cyclical and seasonal
- What causes each type, with an example from a different country
- How to tell the types apart in an exam question
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Unlock This CourseWhy the cause of unemployment matters
Two people can both be unemployed for very different reasons. One has just left a job to find a better one. Another has lost a job because their whole industry has shrunk. Economists group these reasons into four types. In the exam you are often given a short story and asked to name the type, so it is worth learning exactly what makes each one different.
Key terms:
- Frictional unemployment: short-term unemployment of people who are between jobs, for example while they search for a new one.
- Structural unemployment: unemployment caused by a long-term change in the economy, so that the skills of workers no longer match the jobs available.
- Cyclical unemployment: unemployment caused by a fall in total demand in the economy. It is also called demand-deficient unemployment.
- Seasonal unemployment: unemployment caused by regular changes in the demand for labour at different times of the year.
Frictional unemployment
Frictional unemployment happens because finding a job takes time. A worker may leave one job and start looking, a graduate may be searching for a first job, or a person may be waiting to start a new job next month. Employers also need time to read applications and interview people.
There are plenty of vacancies in this case, and the workers have suitable skills. It simply takes time to match them. Because of this, frictional unemployment is usually short and it exists even when the economy is healthy.
Example from Belvoria
In Belvoria, a country in South America, Rosa leaves her job at a bank to look for a better one. She spends five weeks applying and attending interviews. During those weeks she is frictionally unemployed.
Structural unemployment
Structural unemployment happens when the structure of the economy changes in a lasting way. The jobs that existed are gone, new jobs are created, but the unemployed workers do not have the skills or the location for the new jobs. Two common causes are:
🔄 Shifts in demand between industries
Consumers spend less on the products of one industry and more on another. The first industry shrinks and its workers lose their jobs.
This unemployment can last a long time, because workers need to retrain or move to find work. Remember, the ease of changing job or moving is covered in the lesson on mobility of labour.
Examples
Technological change in Pelvaria: a factory that made film cameras installs robots, and 400 assembly workers lose their jobs. The only new jobs are for software engineers.
Shift in demand in Lorvane: buyers switch from printed newspapers to online news. Printing firms close and their workers are left without jobs.
Cyclical unemployment
Economies go through ups and downs in total demand. When total demand falls, firms sell less, so they need fewer workers and cut jobs. This happens across many industries at the same time. Because the cause is too little demand, it is also called demand-deficient unemployment.
Remember, a recession is a fall in real GDP, and unemployment usually rises in a recession. When demand recovers and the economy grows again, firms hire again and this unemployment falls.
Example from Hartwen
In Hartwen, a country in Europe, shoppers and firms cut their spending. Car makers, shops and builders all sell less. Thousands of workers in these different industries lose their jobs at the same time.
Seasonal unemployment
Some jobs exist only at certain times of the year because the demand for the product or service changes with the season. Workers in these jobs are unemployed in the off-season, and this happens year after year in a predictable pattern. It is common in farming, tourism, fishing and construction.
Example from Mirasol
In Mirasol, a made-up island country in the Indian Ocean, hotels hire 300 extra staff for the tourist season. When the season ends, those staff are unemployed until the next season starts.
How to tell them apart
Ask yourself one question about the story in the exam: why is the person without a job? Then match the clue.
- Between jobs, searching, skills still wanted = frictional.
- Industry has shrunk, skills no longer match, caused by technology or a shift in demand = structural.
- Spending has fallen across the whole economy = cyclical.
- Jobs depend on the time of year = seasonal.
Common mistakes
1. Calling every job loss cyclical. Cyclical needs a fall in total demand across the economy, not just one industry. If one industry shrinks because of a new machine, it is structural.
2. Mixing up frictional and structural. In frictional unemployment the worker's skills are still wanted. In structural unemployment the skills are no longer needed.
3. Treating seasonal as the same as cyclical. Seasonal comes back every year at the same time. Cyclical follows the ups and downs of the whole economy.
Exam-style question
Tarvon is a country with a busy coastal resort town. Last year, a new automatic ticket system replaced most of the staff at the town's bus station. Nina left her job at a shop to look for a better paid job and has been searching for three weeks. Each winter, Omar, a lifeguard, has no work until the summer visitors return.
(a) Define cyclical unemployment. [2 marks]
(b) Identify the type of unemployment of each of the following: the bus station workers, Nina and Omar. [3 marks]
(c) Explain why structural unemployment may last longer than frictional unemployment. [4 marks]
Model answer
(a) Cyclical unemployment is unemployment caused by a fall in total demand in the economy (1). It is also called demand-deficient unemployment, and it happens when firms sell less and cut jobs (1).
(b) Bus station workers: structural (1). Nina: frictional (1). Omar: seasonal (1).
(c) Frictional unemployment is short because the worker has skills that employers still want (1), so they only need time to find the right match (1). Structural unemployment lasts longer because the jobs have gone for good, for example replaced by technology (1). The workers must retrain in new skills, which takes time (1).
Exam tip
In part (b) use the clues in the story. "Replaced by a system" points to technology, which is structural, and "each winter" points to seasonal. Write the type in one word and move on.