Types of Unemployment: Frictional, Structural, Cyclical, and Seasonal - YouTube

Our identities are often strongly linked with  what we do to make money, which we commonly  

refer to as “jobs.” That’s why when we lose  our jobs, it can be a serious personal issue.  

For governments, it may become a national crisis  if many citizens lose their jobs. In fact,  

one of the quickest ways for economists to  measure the overall health of an economy  

is by tracking the number of people who are out  of work. While some unemployment always naturally  

occurs, even in a booming economy, high rates of  unemployment can be devastating for a society. 

In order to determine the unemployment rate, we  must first look at the labor force. Again, we will  

be looking at how the Bureau of Labor Statistics  does this in the United States. As we learned in  

the previous tutorial, people who are not included  in the labor force include full-time students,  

stay-at-home parents, retired people, active  military, the institutionalized, and those  

who have given up looking for employment for an  extended period of time. And so, to calculate  

the unemployment rate, you take the number of  unemployed divided by the labor force times 100.  

For example, if there are 10 million unemployed  people in a country and 150 million in the labor  

force, you’d have an unemployment rate of 6.67%.  However, we must understand that unemployment  

can occur for different reasons. Economists  generally look at four categories of unemployment:  

frictional, structural, cyclical, and seasonal. Frictional unemployment refers to unemployed  

people who are looking for jobs for the first time  or switching jobs. For example, a college student  

might need some time to find the right position  after graduating. Take Harriet, for example.  

Harriet may have graduated from law school  three months ago, but she had to spend that  

time interviewing with various law firms to find  the one that best suits her needs and interests.  

Another example might be someone who had to  quit their job to take care of someone else.  

Consider Vince. Vince left his sales job  two years ago to care for his mother who  

has a severe disability, but now he is  attempting to return to the workforce. 

Structural unemployment refers to  jobs becoming outdated or obsolete  

due to a company or industry no longer requiring  a particular skill set. Structural unemployment  

occurs when a worker’s skills simply don’t match  the skills needed for the jobs available. For  

example, a cashier at a grocery store might lose  their job when self-checkout lanes are installed.  

This is Roberto. Even though he’s been a cashier  for 20 years, his skills are no longer needed as  

his role has been automated. Another example  might be an American auto company moving its  

assembly manufacturing to another country  where labor is less expensive. This is Anna.  

Anna lost her auto assembly job when her local  plant shut down after the company opened a new  

one in its place in Mexico. If this becomes  widespread among American corporations, Anna’s  

skill set is no longer of value in her country. Cyclical unemployment refers to unemployment as  

a result of a poor economy. During recessions, or  downturns in the business cycle, the demand for  

goods and services goes down. This results in less  production, and therefore fewer workers are needed  

and companies begin to lay off employees.  A layoff is a termination of employment for  

business reasons. This means it’s not the worker’s  fault for losing the job. In fact, many laid-off  

employees will be rehired when the recession ends  and the business cycle resumes an upward trend. 

Seasonal unemployment happens when industries  slow down or shut down for a particular season  

or make seasonal shifts in their schedules.  Some jobs just aren’t applicable all year long.  

For example, if you mow lawns in Minnesota, you’d  have a hard time finding lawns to mow in January.  

Similarly, if you plow snow in Minnesota,  you’d have a hard time finding snow to plow  

in July. Much seasonal unemployment occurs in  fields such as agriculture, due to the timing  

of when crops are harvested. And seasons are not  always predictable. Heat, cold, rain, and drought  

can alter harvest schedules by causing fruits and  vegetables to ripen sooner or later than expected. 

So that’s a quick introduction to the four  types of unemployment: frictional, structural,  

cyclical, and seasonal. We must understand that  it’s not possible to have zero unemployment,  

even when everything is going great. Many  economists agree that a healthy economy usually  

has an unemployment rate between 4 and 6 percent,  although this figure continues to be revised.  

This is referred to as full employment, meaning  that nearly everyone who wants a job has a job.  

However, it’s important to recognize that some  workers are forced to take on low-skill, low-wage  

jobs even though they are qualified for high-skill  jobs, simply because those high-skill jobs  

are scarce. They are what economists refer to as  underemployed, or working at a job for which they  

are overqualified, or working part time when they  desire full-time work. There are also discouraged  

workers, who have stopped searching for  employment altogether. Due to these situations,  

the unemployment rate can be misleading. But  one thing is certain. Economists greatly rely on  

tracking unemployment, as it is a useful indicator  for tracking the status of a nation’s economy.