Types of unemployment and their causes
Frictional unemployment is a temporary lack of a job as a result of normal turnover within the labour market. These include: People who have been fired or quit their jobs voluntarily yet thy have marketable skills and are looking for new employment. Young graduates who are actively searching for their first employment. Short unemployment periods between projects, such as in construction industries, whereby workers are laid off on temporary basis. Some unemployment periods are also seasonal, such as at the end of harvesting season where more farm workers are jobless as they wait for the next farming season. This type of unemployment is caused by the transition time taken by an employee before getting to a new job. It also results from lack of information, whereby a job seeker cannot be immediately matched with a job vacancy. It can be reduced by using improved methods of sharing job information, by listing vacancies on the internet (Tucker, 2008). This type of unemployment could be reduced somewhat by more efficient placement services. When workers are free to quit their jobs, some frictional unemployment will always be present.
Structural unemployment: whereby jobs trained for are not there, either for a long-term situation or permanently. It is a situation where the skills of the unemployed do not match the requirements for the jobs available. This can happen in three situations: first lack of education or skills to available jobs. For instance, when graduates come out of college with skills and find that what they learnt is no longer marketable. Shift in demand due to changes in consumer tastes and preferences lead to unemployment of some workers. The imbalances may be caused by inadequacy in skills, location, or personal characteristics.
Technological developments, necessitate new skills in many industries, leaving those workers who have out-dated skills without a job. Those who were producing products whose demand has gone down will be laid off by their companies. Additionally, Introduction of the latest technology may render some workers jobless. This is because some of the jobs performed by them are now done by computers. Structural unemployment can be reduced by retraining for new jobs (Tucker, 2008).
Seasonal Unemployment: Occurs as a result of demand of certain goods and services are seasonal. (Shaw et al, 1997). This type of unemployment affects certain industries such as the tourism and hospitality industry, fruit picking and the catering industries. As the need for such goods and services are only available at certain periods of time. A majority of the seasonal employees are just temporary, meaning that when the demand diminishes, the employees are gone. They are now considered "unemployed" in their transition to find another job. For this very reason, unemployment rates are "seasonally adjusted"
The last type of unemployment is cyclical unemployment; whereby the business cycle is the cause for lack of jobs and it happens during recession. This type of unemployment (also known as Keynesian unemployment or the demand deficient unemployment) is due to the operation of the business cycle. This arises at a time when the aggregate effective demand of the community becomes deficient in relation to the productive capacity of the country. In other words, when the aggregate demand falls below the full employment level, it is not sufficient enough to purchase the full employment level of output. Less production needs to be carried out which ultimately leads to retrenchment of workers. Cyclical or Keynesian unemployment is characterised by an economy wide shortage of jobs and last as long as the cyclical depression lasts. Recession is characterized by a fall in real GDP, as a result companies are forced to close down and workers are laid off. A fall in GDP is caused by reduction in consumer spending, investment as well as reduction in government spending. However, when real GDP goes up unemployment rates also increases. Therefore, a preventive approach such sharp swings in the rates of unemployment, the government should put up macro economic policies that moderate this type of unemployment (Baumol & Blinder, 2009).
Keynesian or classical assumptions in relation to the types of unemployment
Keynesian theory can be used to explain frictional and cyclical unemployment. Keynes was of the opinion that unemployment results from difference between productive capacity and aggregate demand of any economy. Aggregate demand refers to the income available to businesses, the government and the consumer, to use in purchasing goods and services. Gross Domestic Product (GDP) refers to goods that have actually been produced. Therefore, when productive capacity is more than demand, the producers will reduce their output. This leads them to lay off some workers for a while resulting in frictional unemployment (Janda, Berry & Goldman, 2008)
Classical theory explains that when demand for goods and services surpass productive capacity people will be willing to pay for more to get goods and services. This will drive the prices up resulting in inflation. The consumer’s purchasing power will go down as result. Workers will in return demand for higher wages which drives cost of production up. In the end some workers will be laid off to reduce costs. This explains cyclical unemployment. When the inflation is corrected normal situation resumes but the cycle can happen again. In order to reduce unemployment levels, the classical theory, roots for the reduction of wages which will in turn reduce the costs of production. As a result producers will produce cheaper goods and services to the consumers. However, the Keynesian theorists say that, government monetary and fiscal policies should be used. As these will reduce inflation and increase producers’ ability to produce cheaper goods (Blaug, 1997).
Also, classical economists go further to argue that real wage rigidity and any type of rigidity is “ad hoc”. In the classical model there is no involuntary unemployment. People who are not working are voluntarily not in the labour force as this applies to seasonal unemployment. In reality measured unemployment is never zero and it is the problem of unemployment in recessions that concerns policymakers the most. Classical economists have a more sophisticated version of their model to account for unemployment. On the other hand, Keynesian explains that the business cycle is accounting for unemployment that reoccurs throughout the business cycle. Therefore models with clearing markets are of no use to this approach. “As a matter of social science, the issue of whether to focus theoretically on unemployment or to focus on other features of business cycles and hope to learn something about unemployment as a by-product is one of research strategy, neither point of view being usefully enough developed at this point to have proved the other inferior.” (Fisher, 2001).
Conclusion
It is clear that there are different types of unemployment situations and each has its own causes and solutions. Theorists have also tried to explain the various unemployment situations; however, they differ in the causes and solutions for the situations. Any government is supposed to study the unemployment situation in its economy and derive appropriate measures that will help to minimize the effects of the situation. The unemployed individuals should also be able to determine their unemployment situations; hence they will be able to apply appropriate remedies.
References List
Baumol, W. J. and Blinder, A. S., (2009). Economics: Principles and Policy. Mason, OH: Cengage Learning
Blaug, M., (1997). Economic theory in retrospect. Cambridge: Cambridge University Press
Boyes, W. and Melvin, M., (2005). Economics. Boston, MA: Cengage Learning
Fisher, D. (2001). Intermediate Macroeconomics; a Statistical Approach: U.S.A. World Scientific Publishing.
Hughes, J. J, and Perlman, R., (1984). The economics of unemployment: a comparative analysis of Britain and the United States. Cambridge University Press
Janda, K., Berry, J. M. and Goldman, J., (2008). The Challenge of Democracy: American Government in a Global World. Boston, MA: Cengage Learning
Tucker, I. B., (2008). Macroeconomics for Today. Mason, OH: Cengage Learning
