Types of Unemployment

1. The demand for labour is a derived demand: firms hire workers to make goods and services, so it rises and falls with the demand for output.
2. Economists classify unemployment by its cause, because the cause is what decides the cure.
3. The syllabus covers five types: frictional, structural, cyclical, seasonal and technological.

Frictional Unemployment

1. Frictional unemployment is the short-term joblessness of workers moving between jobs.
2. It arises because matching workers to vacancies takes time, as job search, applications and notice periods all create gaps.
3. It exists even when the economy is at full employment, because there are always some people between jobs.
4. Because the cause is a search delay rather than weak demand, better job information shortens it.

Structural Unemployment

1. Structural unemployment occurs when the pattern of demand or production changes and workers' skills or location no longer match the jobs available.
2. As old industries decline, the skills those workers hold are no longer wanted, so their labour is left stranded.
3. It is made worse by occupational immobility (workers lack the skills for new jobs) and geographical immobility (they cannot easily move to where jobs are).
4. It is long-lasting because retraining and relocation are slow and costly, so the mismatch can persist for years.

Cyclical Unemployment

1. Cyclical unemployment, also called demand-deficient unemployment, rises when aggregate demand falls in a downturn.
2. Because the demand for labour is derived, weaker sales lead firms to cut output and lay off workers.
3. It hits many industries at the same time, so it is the most visible type of unemployment in a recession.
4. It eases only when aggregate demand recovers, which is why demand-side policy is the usual cure.

Seasonal Unemployment

1. Seasonal unemployment recurs at predictable times of the year when demand for certain work falls.
2. It is driven by the calendar of some industries, such as tourism, farming and construction, not by the state of the economy.
3. Because it is predictable and temporary, workers expect it and its harm is limited.

Technological Unemployment

1. Technological unemployment occurs when machines or automation replace tasks once done by workers.
2. It is usually treated as a form of structural unemployment, because the displaced workers need new skills to find work.
3. Automation may create new jobs elsewhere, but affected workers often lack the skills to fill them, so the mismatch remains.

Matching Type to Cure

1. Because each type has a different cause, each needs a different policy.
2. Frictional and seasonal unemployment fall with better job information and matching.
3. Structural and technological unemployment need retraining and greater labour mobility.
4. Cyclical unemployment needs policies that raise aggregate demand.

Which type of unemployment matters most?

1. In a downturn, cyclical unemployment matters most, because it is large-scale, strikes many industries at once and responds fairly quickly to demand-side policy that lifts aggregate demand.
2. In normal times, structural and technological unemployment do the deeper harm, because a skills or location mismatch is long-lasting, can cause hysteresis and cannot be cured by demand alone, while frictional and seasonal unemployment are mild and largely self-correcting.
3. The ranking also depends on who is affected: long-term structural unemployment concentrated on one region or a low-skilled group is far more damaging than a brief frictional spell spread thinly across many workers.
4. On balance, no single type is always worst, so which one matters most depends on the economy's position in the cycle, the time horizon and who bears it; policy should therefore target the specific cause rather than the headline rate.