Economics Part B

Understanding Four Categories of Unemployment

The unemployed populace can be divided into four groups corresponding to why they are unemployed:

  1. Frictional unemployment

  2. Structural unemployment

  3. Cyclical unemployment

  4. Natural unemployment

Frictional Unemployment

The unemployed in this group are employees who resigned or were fired from one place of employment, and are looking for other work, in addition to young people who are looking for their first jobs.

The duration of unemployment in this group is usually relatively short.

Structural Unemployment

The unemployed in this group were fired from some specific sector, while the reason(s) for being fired were one or more of the following:

  • A fall in demand for the goods produced by the sector.

  • Technological improvements that reduce the need for employees in the sector.

  • A preference for foreign employees in the sector.

The duration of unemployment in this group is variable.

These unemployed workers must usually undergo professional retraining for another sector.


Cyclical Unemployment

The unemployed in this group were fired during a recession at the national or global level.

The duration of unemployment in this group is relatively lengthy.

Unemployment will be reduced only after an emergence of the economy from recession.

Natural Unemployment

In any economic situation, including a period of rapid economic growth, frictional and structural unemployment usually co-exist.

Unemployment in these two categories is called natural unemployment. In most countries, natural unemployment is usually in the 4 to 6% range.

Natural unemployment cannot be measured accurately; it is always an estimate that is based on samples. When the unemployment rate is higher than the natural unemployment rate, we attribute the difference to a recession or economic slowdown.

Understanding Four Categories of Unemployment557Understanding Four Categories of Unemployment