Types of Unemployment

Readers Question: What are the types of unemployment?

Firstly, we can make a distinction between:

  • Supply side unemployment (the natural rate of unemployment). These are usually microeconomic imbalances in labour markets.
  • Demand side unemployment (Unemployment caused by lack of aggregate demand in the economy). In recessions, we can expect demand deficient unemployment (sometimes called cyclical unemployment) to increase significantly.

Supply side unemployment

  • Frictional – This occurs when people are in between jobs. For example, a school-leaver may take some time to get his first job. There will always be some degree of frictional unemployment in an economy.
  • Structural – This is unemployment due to occupational or geographical immobilities. Often occurs after structural change in the economy. E.g. closure of mines, left many miners struggling to find suitable work. For example, there may be jobs available in the service sector, but unemployed miners don’t have the relevant skills to be able to take the jobs. See: structural unemployment.
  • Geographical Unemployment. This occurs when unemployment is concentrated in certain areas. Jobs may be available in some prosperous areas (e.g. London) however, there may be difficulties for the unemployed to move to these areas (e.g. difficulty in finding accommodation, children in schools, e.t.c.) Note, geographical unemployment is often considered part of structural unemployment.
  • Real Wage Unemployment. e.g. powerful trades unions bargaining for wages above the equilibrium. (this may be exacerbated by fall in aggregate demand) See: real wage unemployment.

realwageDiagram showing real wage unemployment

  • Voluntary unemployment. This occurs when people prefer to remain on benefits rather than take a job, i.e. the unemployed refuse a job offer. Some debate exists over the extent of voluntary unemployment. But, arguably high benefits may encourage some to stay on benefits rather than take low paid jobs.
  • Seasonal Unemployment. Unemployment may be higher during certain periods (e.g. out of tourist season)

Demand Side Unemployment

  • Demand deficient unemployment – a fall in AD, leads to a fall in economic output. Therefore firms employ fewer workers. This is sometimes referred to as ‘cyclical unemployment’ – the idea that unemployment rises and falls with changes in the economic cycle. See: demand deficient unemployment.


3 thoughts on “Types of Unemployment

  1. The economy, as all matters in the universe are of a cyclical nature. The only thing that is constant is continuous movement. The ups and downs in the economic cycle provide the needed energy for the economy to move forward. Like a car must stop for refueling tonce in a while the same way the economy has to slow down for recharging the batteries that make it run. Over the years , we have gotten very good in recharging the econolic batteries very fast and efficently. Refueling stops i.e. recessions have become shorter and shorter while periods of growth have become longer.

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