(Macro) Episode 19: Types of Unemployment

Summary

The video discusses four types of unemployment: frictional, structural, seasonal, and cyclical. Frictional unemployment happens when qualified individuals with transferable skills seek new jobs. Structural unemployment occurs due to changes in the economy, like when new industries replace old ones, requiring new skills. Seasonal unemployment results from predictable trends, such as holidays or weather. Cyclical unemployment arises from economic downturns. The goal of low unemployment, rather than zero, is based on maintaining a dynamic economy. The natural rate of unemployment balances frictional and structural factors without causing inflation.

Takeaways

• 🔍 Unemployment means not working but actively seeking work.
• 🔄 Frictional unemployment is due to natural economic frictions, involving qualified individuals with transferable skills changing jobs.
• 🎓 A student entering the labor force after graduation, and seeking work, counts as frictional unemployment.
• ⌛ Frictional unemployment tends to be shorter in duration than other forms of unemployment.
• 🏭 Structural unemployment arises from changes in the economy that eliminate jobs and require new skills.
• 🔨 A notable example of structural unemployment is the impact of NAFTA in the 1990s, where factory workers lost jobs and white-collar jobs emerged.
• ❄️ Seasonal unemployment is tied to predictable seasonal trends, like agricultural jobs or holiday retail demand.
• 📉 Cyclical unemployment occurs during economic downturns, when fewer jobs are available, and varies in severity and duration.
• 📊 Full employment is achieved when the unemployment rate matches the natural rate, which includes only frictional and structural unemployment.
• ⚖️ The natural rate of unemployment is not zero but low, traditionally 5-6%, though it dropped to 4% during the 1990s without inflation.

Q & A

What is the definition of frictional unemployment?

Frictional unemployment occurs when individuals with transferable skills change jobs due to natural economic frictions. These people are typically qualified and actively seeking new opportunities, like a contract worker moving between jobs.

Can you provide an example of frictional unemployment?

An example of frictional unemployment is a contract engineer who seeks new employment every 6 to 18 months as their contract expires. Another example is a college graduate seeking a job after completing their studies.

What is structural unemployment, and how is it different from frictional unemployment?

Structural unemployment is caused by changes in the economy that eliminate some jobs and create others for which workers are unqualified. Unlike frictional unemployment, which is short-term, structural unemployment often requires workers to acquire new skills and education, and is a longer-term issue.

What is a historical example of structural unemployment?

A good example of structural unemployment is the passage of the North American Free Trade Agreement (NAFTA) in the 1990s, which caused the loss of many blue-collar factory jobs in the U.S., but created white-collar jobs in fields like computer programming and finance. Workers laid off from factory jobs were often unqualified for these new positions.

What is seasonal unemployment?

Seasonal unemployment occurs due to predictable and periodic fluctuations in demand for jobs that are tied to the seasons. For instance, jobs related to seasonal crops, activities like skiing, or holiday-related demand, like Christmas.

What is cyclical unemployment?

Cyclical unemployment occurs due to contractions in the economy. When the economy is doing poorly, fewer jobs are available, and unemployment increases. Conversely, when the economy is strong, unemployment decreases.

Why is cyclical unemployment particularly problematic?

Cyclical unemployment is problematic because no two economic cycles are the same in terms of severity or duration. It can be challenging to predict when jobs will return, as recovery times can vary from a few months to several years, such as during the Great Depression.

Why is the goal of macroeconomics low unemployment rather than zero unemployment?

Zero unemployment is not the goal because frictional and structural unemployment are natural and healthy in a dynamic economy. Labor needs to be able to move freely, and technological and structural changes continually create new job demands.

What is the natural rate of unemployment?

The natural rate of unemployment is the unemployment rate caused only by frictional and structural factors. It is the target rate for full employment, meaning all unemployment is voluntary or transitional. Historically in the U.S., it was thought to be 5-6%.

What happens if the unemployment rate drops below the natural rate of unemployment?

If the unemployment rate drops below the natural rate, companies may start competing for workers by offering higher salaries and better benefits, which can lead to rising product prices and inflation.