Thursday, May 31, 2012

Types of Unemployment

Modern, mainstream economics universally recognizes three types of unemployment:  frictional, structural, and cyclical.  Some people add in seasonal unemployment to give us four types of unemployment.  These types of unemployment are pretty universal.  Not only on the net(see hereherehere, and here), but in N. Gregory Mankiw's Intro text book, Principles of Economics, as well.  Let's take a brief look at each kind.

Frictional Unemployment are workers who are literally "between jobs".  It is only the time lag it takes for a worker to leave one job and go to another(or become self-employed).  There might be some delay while a worker works on her resume` and goes through the interview process and possible wage negotiations.  Frictional unemployment is normal and healthy in any economy.  In fact, not having any, I speculate, would be inefficient and have a lot more unhappy workers who are stuck in their jobs.

Structural unemployment is the type of unemployment that comes up when the jobs employers are offering do match the skill or desire of those who are looking for work.  In a way, this could be considered long-term frictional while employees get new skills or employers adjust their requirements.  But I think that it is right to separate this kind of unemployment from frictional.  It's causes are different and therefore solutions would be different.

Combating structural unemployment seems to be the one issue that unites liberals and conservatives in the United States.  Reducing structural unemployment seems relatively simple.  If workers don't have the skills they need, then they need training or education.  Job training appears to be the only "jobs" program conservatives are willing to fund.

Cyclical unemployment is of course unemployment related to downturns in the economy.  Classic Keynesian economists will say it's from a lack of demand in the economy.  Monetarists or neoliberals like Mankiw will call it a downturn out of sync with the "natural rate of unemployment".  Austrians will deny that such a thing exists(claiming it's a type of structural unemployment created by bad policy) .  Unlike structural unemployment, conservatives are usually less willing to do anything about this.  Although not always, since the Bush tax prebates in 2001 that sent money to people is a Keynesian solution to driving up demand.  It might not be considered an orthodox approach, but it accepts the Keynesian precepts of driving up demand via government.

Finally, we come to seasonal unemployment.  There are some jobs that are only demand for part of the year.  For instance, retail stores hire extra people before Christmas.  Another example are farm workers who are only needed during the planting season and harvest time.  These are jobs that naturally don't exist year round.  When the demand for those jobs end, workers are left unemployed.  I understand why some people don't consider this a type of unemployment.  Some might just call this frictional since, presumably the workers will find other seasonal jobs once laid off.  I can understand that reasoning of both sides.  Seasonal employees will likely have more than 1 job, but seasonal unemployment poses unique problems from the other types so it makes sense to track them separately.

So that's the three (or four) different types of unemployment.  Not a lot of controversy for the most part.  The only part up for debate between the different economic schools is the existence of cyclical unemployment, and how best to understand it.
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