This type of unemployment happens when the labor market is at equilibrium, meaning jobs exist but people are either unable or unwilling to take the jobs that exist.
Example 1: Frictional Unemployment/ Natural Employment
Example 1: Frictional Unemployment/ Natural Employment
- This is short-term unemployment that occurs when people are in between jobs, or they have left education and are waiting to take up their first job. This is also called natural unemployment because it is natural for people to leave jobs in the hopes of finding better ones. Also, it is not seen as a negative outcome in any dynamic economy. If people leave one job, it is assumed they will move to a different job where they can be more productive.
- Solutions to frictional unemployment: Some argue that people will have little incentive to find a job if the unemployment benefits are generous and allow them to take their time in looking. Thus, the government could lower unemployment benefits to encourage unemployed workers to take jobs rather than allow them the chance to wait for a better one to come along. If benefits are reduced, workers may become more willing to work, thus shifting the supply of labor to the right. Another possible solution would be to improve the flow of information from potential employers to people looking for jobs. This could be through internet job sites, newspapers, job centers, and employment counselors.
- Occupations affected include: Lower-paying jobs, such as cashiers, baggers at stores, etc are affected. These are jobs that people may not be aware are open; thus increasing the flow of information can increase the labor supply. All jobs can be affected, as this type of unemployment occurs when people are between jobs or are waiting for their first job, which could be any occupation.
- The graph below shows frictional unemployment. As shown, the Labor Supply line is to the left of the Labor Force line. The government wants to shift the labor supply to the right (increase it), to close the a-b unemployment gap between the two lines.
Example 2: Seasonal Unemployment
- In many economies, some workers will be employed on a seasonal basis. The demand of certain workers falls at certain times of the year.
- Occupations affected include: construction workers in temperate climates, tourism workers in changing climates (ski instructors).
- Possible solutions: encourage people to take different jobs in their "off seasons." Reducing unemployment benefits and increasing the flow of information between employers and workers can work as well.
- The graph below shows seasonal unemployment. As shown, the demand line shifts to the left, representing a decrease in the demand for labor.
Example 3: Structural Unemployment
- This is the worst type of equilibrium unemployment and occurs as the result of the changing structure of an economy. This occurs when there is a permanent fall in demand for a particular type of labor. This tends to result in long-term unemployment as people who lose their jobs lack the skills to take on newly-created jobs. This means they lack the occupational mobility to change jobs. It may be that jobs are created in one part of the country, while the unemployed are living in another part of the country. They lack the geographic mobility.
- There are many causes for structural unemployment. New technologies can make certain types of labor unnecessary (ATMs have reduced the demand for human bank tellers). Lower-cost labor in foreign countries might cause a fall in the demand for a particular type of labor (there is less demand for handmade goods, such as furniture, because in places such as China, the cost of making that good is lower, leading to unemployment among handmade furniture makers). Changes in consumer tastes may lead to a fall in demand for a particular type of labor (people concerned about the health risks of smoking has lead to a decrease in the demand for cigarettes, causing cigarette manufacturers to decrease employment).
- Possible solutions (interventionist policies): Create an education system that trains people to be more occupationally flexible. In developed economies, people may have to change their career several times, and an education system will help people learn the skills to adapt to rapidly changing economic conditions. Another solution is create adult retraining programs to help people acquire necessary skills to match available jobs. A third solution is for the government to give subsidies to firms that provide training for their workers. The government could also provide subsidies or tax breaks to encourage people to move to areas of the country where jobs exist. A final solution is that the government could support apprenticeship programs so that potential workers can acquire the skills needed in the labor force.
- Possible solutions (market-based/ free market supply-side policies): Governments could reduce unemployment benefits to give unemployed people the incentive to take the jobs that are available. Some people believe that government intervention and labor market regulations reduce labor market flexibility and discourage businesses from hiring and firing. Thus they are in favor of deregulation of labor markets. There are disadvantages of to these solutions. People who lose their unemployment benefits will have lower living standards, and so the policy could increase inequity in an economy. Also, labor market regulations are in place to protect workers from unfair treatment, such as being fired without due cause. They also guarantee certain conditions of work such as working time, holidays, and safety at work. Deregulation may cause worse working conditions for labor.
- The graph below shows structural unemployment. Because of one of the above-mentioned causes, the demand for labor falls. On the graph, this is shown in the shift in the demand line to the left. Consequently, there are fewer workers employed, and the wage falls from W1 to W2.