Types of unemployment
In the following table, determine what type of unemployment best describes each situation.
Structural Unemployment
Frictional Unemployment
Cyclical Unemployment
Charles quit his part-time job to search full time for a job that was more closely related to his education. Jamal was laid off as a teacher because of government budget cuts, made necessary by a fall in tax revenues caused by a recession. Rosa was a highly skilled instrument maker, but she hasn’t been able to find work in the field since her workshop closed due to competition from instrument makers in China.
Imagine an economy where the cyclical rate of unemployment is 5% and the natural rate of unemployment is 2.5%. In this economy the total rate of unemployment would be and the frictional rate of unemployment would be. (Select % if the rate cannot be determined from the information given.)
The Correct Answer and Explanation is:
Sure! Here’s the classification of the types of unemployment for each situation:
| Situation | Type of Unemployment |
|---|---|
| Charles quit his part-time job to search full time for a job more related to his education. | Frictional Unemployment |
| Jamal was laid off as a teacher because of government budget cuts caused by a recession. | Cyclical Unemployment |
| Rosa was a highly skilled instrument maker, but can’t find work since her workshop closed due to foreign competition. | Structural Unemployment |
Explanation of Each Type:
Frictional Unemployment:
This occurs when workers are temporarily between jobs or searching for new jobs that better match their skills or preferences. Charles voluntarily quitting his part-time job to find something more closely related to his education is a classic example of frictional unemployment — it reflects the time spent transitioning between jobs.
Cyclical Unemployment:
This type of unemployment results from downturns in the economy or recessions. When overall demand falls, companies lay off workers because they have less business. Jamal losing his job due to government budget cuts caused by recession-induced lower tax revenues is cyclical unemployment. It is directly linked to the ups and downs of the economic cycle.
Structural Unemployment:
Structural unemployment happens when there is a mismatch between workers’ skills and the jobs available, often due to technological change or globalization. Rosa, who cannot find work because her workshop closed due to foreign competition, is structurally unemployed. The industry changed in a way that reduced the demand for her specific skills in the local market.
About the Economy with Given Rates:
- Cyclical rate of unemployment: 5%
- Natural rate of unemployment: 2.5%
The natural rate of unemployment includes frictional and structural unemployment. It represents the baseline level of unemployment even when the economy is healthy and growing (no cyclical unemployment).
The total rate of unemployment = natural rate + cyclical rate
= 2.5% + 5%
= 7.5%
Since the natural rate includes both frictional and structural unemployment, and we don’t have data splitting the natural rate into frictional and structural components, the frictional unemployment rate cannot be determined precisely from the information given. It could be anywhere between 0% and 2.5%, but no exact figure is provided.
Summary:
- Charles = Frictional
- Jamal = Cyclical
- Rosa = Structural
- Total unemployment rate = 7.5%
- Frictional unemployment rate = Cannot be determined from info provided
