Unemployment is primarily of Three Types:
1. Structural Unemployment:
"Structural unemployment is a unemployment that comes from there being an absence of demand for the workers that are available."
There are two major reasons that cause an absence of demand for workers in a particular industry:
a) Changes in Technology: As personal computers replaced typewriters, typewriter factories shut down. Workers in typewriter factories because unemployed and had to find other industies to be employed in.
b) Changes in Tastes: If bagpipes become unpopular, bagpipe companies will go bankrupt and their workers will be unemployed.
2. Frictional Unemployment:
"Frictional unemployment is unemployment that comes from people moving between jobs, careers, and locations."
Sources of frictional unemployment include the following:
a) People entering the workforce from school.
b) People re-entering the workforce after raising children.
c) People changing unemployers due to quitting or being fired (for reasons beyond structural
d) People changing careers due to changing interests.
e) People moving to a new city (for non-structural reasons) and being unemployed when they arrive.
3. Cyclical Unemployment:
"Cyclical unemployment occurs when the unemployment rate moves in the opposite direction as the GDP growth rate. So when GDP growth is small (or negative) unemployment is high."
Getting laid off due to a recession is the classic case of cyclical unemployment. This is why the unemployment rate is a key economic indicator
4. What About Seasonal Unemployment?:
Seasonal unemployment is unemployment due to changes in the season - such as a lack of demand for department store Santa Clauses in January. Seasonal unemployment is a form of structural unemployment, as the structure of the economy changes from month to month.