Types of Unemployment

There are three main categories of unemployment: cyclical, structural, and frictional. Cyclical unemployment is most common during a recession, while structural and frictional unemployment make up the natural rate of unemployment. In addition to these three types, there are long-term, seasonal, and classical unemployment, as well as real unemployment and underemployment.

Defining Unemployment

The Bureau of Labor Statistics defines unemployment as not working, being available to work, and actively seeking work in the past four weeks. Those who stop looking for work are categorized separately as "marginally attached to the labor force." The unemployment rate is calculated by dividing the number of unemployed by the total labor force.

Cyclical Unemployment

Cyclical unemployment occurs during a recession when demand for goods and services decreases, leading to layoffs and a downward economic spiral. Government intervention is often necessary to prevent further job losses.

Frictional Unemployment

Frictional unemployment happens when workers transition between jobs, voluntarily leave positions, or re-enter the workforce. It is a natural part of the job search process and can be beneficial for the economy by allowing workers to find more productive roles.

Structural Unemployment

Structural unemployment arises from shifts in the economy that create a skills gap between workers and employer needs. It may result from technological advancements or industry changes, leading to long-term unemployment if workers' skills become outdated.

Natural Unemployment

Natural unemployment includes frictional and structural unemployment, explaining why some level of unemployment is inevitable even in a healthy economy. People changing jobs and evolving skill requirements contribute to this steady rate of unemployment.