- Natural rate of unemployment
- The natural rate of unemployment is the rate of unemployment that would remain if the economy were neither booming nor in recession.
- Full employment
- Full employment is when the actual unemployment rate equals the natural rate, so some people are still out of work.
Types of unemployment
Can you name four types of unemployment?
Each type has its own cause, and the cause decides whether a recovery in spending will cure it.
Frictional unemployment is the unemployment that results from people moving between jobs, while they learn about vacancies, apply and find a good match.
Can you think of an example?
A graduate leaves university in June and spends the summer weighing up offers before starting work in September. The jobs exist and her skills fit them; the months out of work are the time the search took.
Structural unemployment is unemployment among people who lack the skills the labour market values, often because demand has shifted away from the skills they have.
Can you think of an example?
A steelworker in south Wales loses his job when the plant closes. The new jobs nearby are in care and software, and he lacks the skills they need, so a recovery in spending will not bring his job back.
Cyclical unemployment is the rise in unemployment that occurs because of a recession, when firms want less labour and wages do not fall to match.
Can you think of an example?
A bricklayer loses work when a recession cuts house-building. When spending recovers and builders start new estates again, he is hired back, because the kind of job he lost has returned.
Seasonal unemployment is unemployment that comes and goes at the same time each year, as demand for some kinds of work rises and falls with the seasons.
Can you think of an example?
A café worker in Cornwall is laid off every October when the tourists leave and taken on again each spring. Her job returns every year whatever the state of the economy as a whole.