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  • Now that we know the termunemployedmeans not working, but seeking work, you need

  • to recognize that there are different types of unemployment, some of longer duration and/or

  • more serious consequence to the economy than others.

  • Frictional unemployment is unemployment due to the natural frictions of the economy, which

  • is caused by changing conditions and represented by -- here's the most important part -- qualified

  • individuals with transferable skills who change jobs. Examples might include a short-term

  • contract engineer, who seeks a new position every 6 to 18 months, as his/her contract

  • expires. This person has the skills to move to a new contract position. Or, what about

  • a full-time college student was not previously unemployed, but starts interviewing for jobs?

  • Once the student starts seeking work, he/she becomes part of the labor force. As long as

  • he/she has the education and skills necessary to start a job, it counts as frictional unemployment.

  • Frictional unemployment is typically of shorter duration than some of the other forms of unemployment.

  • Structural unemployment is unemployment due to structural changes in the economy that

  • eliminate some jobs and create others for which the unemployed are unqualified. One

  • really good example that I can think of is from the 1990s, when the North American Free

  • Trade Agreement (NAFTA, for short) was passed. With the passage of NAFTA, the US lost a lot

  • of blue-collar, factory-type jobs, but gained white-collar jobs, say, in computer programming

  • or finance. Workers laid off from their factory jobs couldn’t very well apply right away

  • for high-tech job; they would need to go back to school for a whole new type of training

  • and education. Some who got laid off were older workers, who were not interested in

  • going back school at all. Overall, structural unemployment is a longer-term issue than frictional

  • unemployment.

  • Seasonal unemployment is unemployment due to seasonal trends. For example, jobs related

  • to a seasonal crop, or a seasonal activity, such as skiing, or seasonal demand like at

  • Christmas. Seasonal unemployment is periodic and predictable, and can therefore be planned

  • around.

  • Cyclical unemployment -- unemployment due to contractions in the economy. The economy

  • moves in cycles. When the economy does well, there are lots of jobs and unemployment is

  • down. When the economy does poorly, there are fewer jobs and the unemployment rate goes

  • up. The biggest problem with cyclical unemployment is that no two cycles are the same in terms

  • of severity or length, so it's difficult to tell when jobs will come back. It could be

  • a few months, or over year. In the case of the Great Depression, it was years before

  • the economy recovered and jobs were created.

  • Now that weve considered these four types of unemployment, think back to the second

  • macroeconomic goal: low unemployment. Notice the goal is NOT zero unemployment, but rather

  • low unemployment. Why do you suppose this is? One reason is that, in a dynamic economy,

  • where labor is allowed to move freely from one job to another, or even one career to

  • another, there will always be some amount of frictional unemployment. Similarly, the

  • continual change that occurs an innovative society means that there is always some structural

  • unemployment. To eliminate these, you’d need to appoint each employee to a job, and

  • that would be the person's job for life. Plus, you could never allow any underlying structural

  • change, like technological improvements.

  • No, zero unemployment isn't the goal, but low unemployment is. How low? Well, the natural

  • rate of unemployment -- that caused only by frictional and structural factors -- is our

  • target. If we've achieved the natural rate of unemployment, we have full employment.

  • Full employment is the condition that exists when the unemployment rate is equal to the

  • natural unemployment rate. For many years in the US, the natural rate of unemployment

  • was thought to be 5 to 6%. But then, with the unprecedented economic expansion of the

  • US economy in the 1990s, we experienced 4% unemployment without suffering any negative

  • inflationary side effects. If we go much lower than this though, companies would start competing

  • to get workers by offering higher salaries and more benefits, which would in turn drive

  • product prices upward, causing inflation.

  • NEXT TIME: GDP TRANSCRIPT0 (MACRO) EPISODE 19: TYPES OF UNEMPLOYMENT

Now that we know the termunemployedmeans not working, but seeking work, you need

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B1 unemployment economy seasonal structural unemployed unemployment rate

(Macro) Episode 19: Types of Unemployment

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    Huang LuLu posted on 2015/09/12
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