This paper discusses the different types of unemployment and its implications on the economy as a whole. In the following section we have detailed about the five different types of unemployment.
Frictional unemployment occurs when a person is out of one job is searching for another. It generally requires some time before a person can get the next job. During this time he is frictionally unemployed. The problem of frictional unemployment is minimized with the development of efficient labor markets. The time period of shifting from one job to another is almost nil. However, imperfect information may aggravate the problem of frictional unemployment. The more developed an economy is, higher is the probability of getting a job faster and lower is the probability of frictional unemployment.
Structural unemployment arises when the qualification of a person is not sufficient to meet his job responsibilities. Stated alternatively, structural unemployment arises when the marginal revenue product of a person falls short of the minimum wage that can be paid for the concerned job. The minimum wage is set by law or by negotiations in the union. Structural unemployment can also accompany a situation of zero minimum wages. The extent to which structural unemployment takes place depends on a number of parameters. Higher the mobility of labor across different jobs, lower will be the structural unemployment. Along with the mobility of labor, structural unemployment also depends on the growth rate of an economy as well as the structure of an industry.
Real Wage or Classical Unemployment
This type of unemployment problem arises when the wages rise above the equilibrium full employment level. In such a situation the wages are not flexible downwards which will imply that unemployment would persist for long. Such wages may be set by manipulations in the trade union.
Cyclical or demand deficient unemployment occurs when the economy is in need of low workforce. According to the Keynesian economists this type of unemployment occurs due to economic disequilibrium. This form of unemployment is most commonly known as cyclical unemployment since unemployment moves with the trade cycle. The demand for labor increases with the economy in the boom phase. Again, when the economy passes though recession, demand for labor contracts and the surplus is released as the unemployed labor force.
There are certain kinds of unemployment that tend to concentrate in a particular time of the year and are known as seasonal unemployment. Seasonal unemployment is most common in industries like tourism, hotel, catering and fruit picking.
Hence from the above types of unemployment we may conclude that as long as demand supply gap persists in the labor market, unemployment will exist. The pace of economic growth is also a factor contributing to the different types of unemployment.