Cyclical unemployment:
Definition:
Cyclical unemployment is unemployment created by irregular declines in overall
economic activity:
Main reasons for this unemployment:
The economy is faced with recurring but irregular
declines in economic activity. During these declines national product falls because
expenditures on national product fall. And because business firms are producing
less output, they employ fewer workers and unemployment created.
Example:
It automobile factories, steel mills, and retail
stores do not have sufficient demand for their product, and then they are
likely to lay off some of their labor.
Characteristics:
(i) It is
involuntary unemployment
(ii) An important
aspect of cyclical unemployment is that it occurs at irregular intervals; firms
are never quite sure when economic activity will decline.
Seasonal unemployment:
Definition: Seasonal
unemployment is unemployment created by relatively regular, or seasonal,
declines in business activity.
Example:
Construction workers, Life guards, professional baseball players are typically
unemployed during the winter months.
Salient Features:
(i) Seasonal
unemployment is more often voluntary unemployment.
(ii) It relates to
decline in business activity
Frictional unemployment:
Definitions:
Frictional unemployment is unemployment created by imperfections in the labor
market.
Main reasons:
Frictional unemployment occurs because:
(i) It takes time
for an unemployment worker to find a job, even though the job is available. This
might be due to lack of information concerning job opportunities, or the time
lag involved in moving in to new location.
(ii) There will
always be a group of job seekers who are "between jobs". They
constitute the frictionally unemployed labor force of the economy.
Main characteristics:
(i) With frictional
unemployment, people are typically moving form one job to another, so they are
voluntarily unemployment form their pervious job, even though they have get to
find another job.
(ii) Frictional
unemployment is a basic fact of the economy, and even when the economy is full
employment, frictional unemployment exists.
Structural unemployment:
Definition:
Structural unemployment is unemployment created by changes in the types of skill
acquired in the production of goods and services.
Main reasons:
This type of unemployment occurs because the basic
structure of the economy changes, such that the skills possessed by unemployed
workers may not be able the skills needed by firms.
Example:
As more firms computerize their operations, many of
the skills associated with the operation of machinery are no longer needed. If
firms need workers who possess computer-orient skills, then the machine
operators are structurally and therefore involuntarily unemployed.
Characteristics:
(i) It is
involuntarily unemployed.
(ii) Structural
unemployment is usually long-lasting and requires straining & production.
Natural rate of unemployment:
Definition:
When the economy is full employment and only the unemployment existing in the
economy is frictional & Structural unemployment. The frictional and
structural unemployment rates together are called the natural rate of
unemployment. A more expressive term is "Non-Accelerating inflation rate
of unemployment" which suggests that when the actual rate of unemployment
is equal to this rate, there is no pressure on the inflation rate to change.
We can express the natural rate of
unemployment by using equation:
Natural rate of unemployment = Frictional
unemployment + structural unemployment
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