In this case, the number of unemployed workers exceeds the number of job vacancies, so that if even all open jobs were filled, some workers would remain unemployed. This kind of unemployment coincides with unused industrial capacity (unemployed capital goods). Keynesian economists see it as possibly being solved by government deficit spending or by expansionary monetary policy, which aims to increase non-governmental spending by lowering interest rates.
Classical economics rejects the conception of cyclical unemployment, seeing the attainment of full employment of resources and potential output as the normal state of affairs. However, it accepts the theory to some extent as full employment can never be reached.
Frictional unemployment exists because both jobs and workers are heterogeneous, and a mismatch can result between the characteristics of supply and demand. Such a mismatch can be related to skills, payment, worktime, location, attitude, taste, and a multitude of other factors. Workers as well as employers accept a certain level of imperfection, risk or compromise, but usually not right away; they will invest some time and effort to find a better match. This is in fact beneficial to the economy since it results in a better allocation of resources. However, if the search takes too long and mismatches are too frequent, the economy suffers, since some work will not get done. Therefore, governments will seek ways to reduce unnecessary frictional unemployment.
Policies to reduce frictional unemployment include:
Frictional unemployment coincides with an equal number of vacancies. Numerically, it is therefore maximal when the labour market is in equilibrium. When for instance demand far exceeds supply, the frictionally unemployed will be few as they will get many job offers.
The frictions in the labour market are sometimes illustrated graphically with a Beveridge curve, a downward-sloping, convex curve that shows a fixed relationship between the unemployment rate on one axis and the vacancy rate on the other. Changes in the supply of or demand for labour cause movements along this curve. An increase (decrease) in labour market frictions will shift the curve outwards (inwards).
Another type of frictional unemployment is seasonal unemployment, where specific industries or occupations are characterized by seasonal work which may lead to unemployment. Examples include workers employed during farm harvest times or those working Winter jobs on the ski slopes or Summer jobs such as life-guarding at outdoor pools and agricultural labor.
Structural unemployment involves a mismatch between the sufficiently skilled workers looking for jobs and the vacancies available. Even though the number of vacancies may be equal to the number of the unemployed, the unemployed workers lack the skills needed for the jobs — or are in the wrong part of the country or world to take the jobs offered. It is a mismatch of skills and opportunities due to the structure of the economy changing. That is, it is very expensive to unite the workers with jobs. One possible example in the rich countries is the present combination of the shortage of nurses with an excess labor supply in Information Technology. Unemployed programmers cannot easily become nurses, because of the need for new specialized training, the willingness to switch into the available jobs, and the legal requirements of such professions.
Structural unemployment is a result of the dynamic changes of a capitalist economy (such as technological change and capital flight) — and the fact that labor markets can never be as fluid as (say) financial markets. Workers are "left behind" due to costs of training and moving (e.g., the cost of selling one's house in a depressed local economy), plus inefficiencies in the labor markets, such as discrimination.
Structural unemployment is hard to separate empirically from frictional unemployment, except to say that it lasts longer. It is also more painful. As with frictional unemployment, simple demand-side stimulus will not work to easily abolish this type of unemployment.
Some sort of direct attack on the problems of the labor market — such as training programs, mobility subsidies, anti-discrimination policies, a Basic Income Guarantee, and/or a Citizen's Dividend — seems required. The latter provide a "cushion" of income which allows a job-seeker to avoid simply taking the first job offered and to find a vacancy which fits the worker's skills and interests. These policies may be reinforced by the maintenance of high aggregate demand, so that the two types of policy are complementary.
Structural unemployment may also be encouraged to rise by persistent cyclical unemployment: if an economy suffers from long-lasting low aggregate demand, it means that many of the unemployed become disheartened, while their skills (including job-searching skills) become "rusty" and obsolete. Problems with debt may lead to homelessness and a fall into the vicious circle of poverty. This means that they may not fit the job vacancies that are created when the economy recovers. Some economists see this scenario as occurring under British Prime Minister Margaret Thatcher during the 1970s and 1980s. The implication is that sustained high demand may lower structural unemployment. However, it also may encourage inflation, so some kind of incomes policies (wage and price controls) may be needed, along with the kind of labor-market policies mentioned in the previous paragraph. (This theory of rising structural unemployment has been referred to as an example of path dependence or "hysteresis.")
Much technological unemployment (e.g. due to the replacement of workers by robots) might be counted as structural unemployment. Alternatively, technological unemployment might refer to the way in which steady increases in labor productivity mean that fewer workers are needed to produce the same level of output every year. The fact that aggregate demand can be raised to deal with this problem suggests that this problem is instead one of cyclical unemployment. As indicated by Okun's Law, the demand side must grow sufficiently quickly to absorb not only the growing labor force but also the workers made redundant by increased labor productivity. Otherwise, we see a jobless recovery such as those seen in the United States in both the early 1990s and the early 2000s.
One of those that have advocated most strongly,that an Structural unemployement are becoming to be a major problem in modern society and could lead to a strongly divided society where the biggest struggle is between those that have,and those that do not have a job,and that this situation could be used by the leadres of companies division for their own purpose,like dumping wages,came from Economist and Philosopher André Gorz he argues that it could be permanent in modern society. He there fore also argues that an basic income must be a solution,and as he explain: "The connection between more and better has been broken; our needs for many products and services are already more than adequately met, and many of our as-yet- unsatisfied needs will be met not by producing more, but by producing differently, producing other things, or even producing less. This is especially true as regards our needs for air, water, space, silence, beauty, time and human contact...
"From the point where it takes only 1,000 hours per year or 20,000 to 30,000 hours per lifetime to create an amount of wealth equal to or greater than the amount we create at the present time in 1,600 hours per year or 40,000 to 50,000 hours in a working life, we must all be able to obtain a real income equal to or higher than our current salaries in exchange for a greatly reduced quantity of work...
"Neither is it true any longer that the more each individual works, the better off everyone will be. The present crisis has stimulated technological change of an unprecedented scale and speed: `the micro chip revolution'. The object and indeed the effect of this revolution has been to make rapidly increasing savings in labor, in the industrial, administrative and service sectors. Increasing production is secured in these sectors by decreasing amounts of labor. As a result, the social process of production no longer needs everyone to work in it on a full-time basis. The work ethic ceases to be viable in such a situation and work based society is thrown into crisis" André Gorz, Critique of Economic Reason, Gallilé,1989
Seasonal unemployment might be seen as a kind of structural unemployment, since it is a type of unemployment that is linked to certain kinds of jobs (construction work, migratory farm work). The most-cited official unemployment measures erase this kind of unemployment from the statistics using "seasonal adjustment" techniques.
Some economists see the inflation barrier as corresponding to the natural rate of unemployment. The "natural" rate of unemployment is defined as the rate of unemployment that exists when the labour market is in equilibrium and there is pressure for neither rising inflation rates nor falling inflation rates More scientifically, this rate is sometimes referred to as the NAIRU or the Non-Accelerating Inflation Rate of Unemployment
No matter what its name, this means that if the unemployment rate gets "too low," inflation will get worse and worse (accelerate) in the absence of wage and price controls (incomes policies). Others simply see the possibility of inflation rising as the unemployment rate falls. This is the famous Phillips curve.
One of the major problems with the NAIRU theory is that no-one knows exactly what the NAIRU is (while it clearly changes over time). The margin of error can be quite high relative to the actual unemployment rate, making it hard to use the NAIRU in policy-making.
Another, normative, definition of full employment might be called the ideal unemployment rate. It would exclude all types of unemployment that represent forms of inefficiency. This type of "full employment" unemployment would correspond to only frictional unemployment (excluding that part encouraging the McJobs management strategy) and would thus be very low. However, it would be impossible to attain this full-employment target using only demand-side Keynesian stimulus without getting below the NAIRU and suffering from accelerating inflation (absent incomes policies). Training programs aimed at fighting structural unemployment would help here.
To the extent that hidden unemployment exists, it implies that official unemployment statistics provide a poor guide to what unemployment rate coincides with "full employment".
A reappraisal of economic development; perspectives for cooperative research; proceedings.(Brief article)(Book review)
Aug 01, 2009; 9780202362670 A reappraisal of economic development; perspectives for cooperative research; proceedings. Midwest Research...