10 Types Of Unemployment (With Reasons And Examples)

Updated 30 September 2022

Many professionals experience unemployment in their careers. While there are many reasons for unemployment, each has a different cause that can often overlap and calls for different solutions and policies. Learning about unemployment and its types can help to understand the job market better. In this article, we explain the different types of unemployment and determine the causes.

Types of unemployment

Understanding the types of unemployment can help learn about the causes and take necessary actions. Here are the 10 different types:

Cyclical

Economies go through periods of inflation and recession. When industries are experiencing instability or lower profitability, unemployment may rise. Cyclical unemployment refers to unemployment resulting from cyclical trends in the business cycle.

Major events, such as wars and pandemics, may trigger this type of unemployment. An instance of cyclical unemployment is during a period of crisis leading to a lack of demand among consumers as they do not have the purchasing power to buy goods and services. Those involved with the production of these goods may lose their jobs since people may no longer need their services.

Frictional

Frictional unemployment occurs when an employee quits their job voluntarily in pursuit of another. Unlike other types of unemployment, frictional unemployment does not indicate an unhealthy economy. This can also occur when people resign from their jobs to look for better prospects.

Examples of frictional unemployment include employees leaving their jobs to pursue higher studies or to be closer to their families who live elsewhere. Freshers and individuals entering the workforce for the first time also experience this type of unemployment. The levels of frictional unemployment are usually lower during a recession since people avoid switching their jobs. It tends to increase when labour demand and supply are at par, which happens quite often in developed economies.

Structural

The release of new technologies and processes can lead to structural unemployment when the skills of employees do not match the demands of the company. While there may be plenty of jobs in the market, a mismatch between company expectations and employees' skills leads to such circumstances. The automation process can replace jobs and skills with the introduction of new technologies, along with less demand for older technologies.

For example, a restaurant may start using new software to handle reservations and customer orders. The restaurant no longer requires servers to physically take orders and convey them to kitchen staff. Since the software can perform servers' duties, the restaurant no longer requires the servers. The company may lay off these employees since a digital system has replaced them and their services. This type of unemployment especially affects mid-aged people who tend to be less proficient in using new technology or lack technical skills.

Natural

An economy can never have zero unemployment. Natural unemployment refers to unemployment that persists even when the economy is healthy and thriving. This type of unemployment, resulting due to natural causes, explains how there can always be some form of unemployment. Frictional and structural unemployment are both types of natural unemployment.

The productivity of employees, technological advances or public policies geared to teaching technical skills to employees can negatively impact natural unemployment. Such measures usually help to upgrade employees and improve retention rates in companies. In contrast, factors like economic meltdowns or recessions can lead to unexpectedly high rates of natural unemployment.

Long-term

When an individual has been looking for a job for 27 weeks or longer, they can be called long-term unemployed. Long-term unemployment can affect the families of concerned people in a negative way. High rates of long-term unemployment can also be challenging for policymakers since it indicates the gaps in labour markets.

One reason for long-term unemployment is economic turmoil. In an example of long-term unemployment, someone who lost their job over six months ago during a recession is still looking for a job when fewer companies are hiring.

Seasonal

Seasonal unemployment occurs because of changes in the weather or working season. This type of unemployment is common in tourist-rich areas where there is a demand for labour when there is enough tourism. Seasonally employed professionals usually transition to other jobs during the off-season.

For example, outdoor employees, like construction crews, typically face unemployment during winter. Resort staff who might only work summers at a lake or winters at a ski resort might be unemployed during other seasons in the year. Seasonal unemployment also affects harvest crews who only work during particular harvest seasons. Ice cream sellers who go from door to door selling ice cream are also seasonal employees.

Classical

Classical unemployment, also called real wage unemployment, occurs when current pay scales are high and an employer is unable to afford to hire more employees or has to let go of current staff. This might happen if state minimum wage standards increase or unions negotiate higher salaries for their working crews. The employer may require hiring more employees, but cannot afford to do so.

Underemployment

Underemployment is a unique category because it includes those who have jobs. These employees might have part-time jobs or seasonal jobs but want full-time positions. This category can also include companies that might not be using the employee's full skill set.

For example, a project manager can only find contract or part-time project positions but seeks full-time roles. Their qualifications are extensive and they have years of experience but cannot find a suitable position. The project manager may also face underemployment if they take an underpaid job, such as delivering newspapers from door to door because they cannot find a role suitable for their skills.

Regional

Regional unemployment occurs in certain areas of the country because of products or industries that exist there. An insufficient education and skills requirement negatively impacts regional unemployment. Government policies can help to reduce this type of unemployment.

For example, regional unemployment might occur after cold-weather hinders orange crops and employees cannot help with the harvest. Regional unemployment can affect a district or city, but not the entire state, where there was no cold weather and the trees were unaffected. Areas that rely heavily on tourism, like beaches, also see more regional unemployment.

Voluntary

Voluntary unemployment is when an employee chooses to leave their job. This type of unemployment does not result from the unavailability of jobs. It results from an individual's own discretion even if they have other opportunities.

An example of this might be an employee taking a severance package and not seeking further employment for a period. This could also include employees who might have found a job but might not agree with the pay or benefits associated with it. They could then continue to look for jobs that better fit their needs.

Reasons for unemployment

There can be several reasons for unemployment:

Lack of education

One of the major reasons for unemployment is the lack of education. When people lack adequate knowledge or skills to earn a job, employers usually hire individuals who possess the same skills or knowledge. Lack of education also implies that the individual cannot acquire new skills to upgrade themselves in the long run, which can come across as a disadvantage for recruiters.

Lack of opportunities

When a region is economically backward, there is a lack of income opportunities. This affects job seekers in the area who may not find jobs suitable to their qualifications or suffer from unemployment. Government policies that focus on the development of these areas and lead to the establishment of new industries can check unemployment in these areas.

Financial crisis

Unemployment tends to increase during a period of economic crisis. Recession leads to business failures resulting in reduced demand, increased company costs and loss of jobs. The number of unemployed people spike since many businesses across the market fail at the same time.

Lack of motivation

A lack of interest or motivation to upskill can also leave job seekers unemployed. For instance, a business analyst might want to be proficient in Microsoft Office Suite along with collaboration and project management tools to work smoothly with their team. Lack of motivation to upskill can hinder progress and reduce the chances of being hired.

Increase in population

Growing population leads to a simultaneous increase in the workforce. A spike in population that is not met with a similar increase in income opportunities can lead to unemployment. The government can take steps to educate and train the younger population to utilise this increasing labour force productively.

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