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Economics 101 – The three types of unemployment

Economists often refer to three types of unemployment: “frictional”, “cyclical” and “structural”. Cold-Economisthearted economists are not too worried about the first two, which refer to people moving between jobs and those temporarily laid-off during a downturn. The third kind refers to people who are excluded—perhaps permanently—from the labour market. In econo-speak, structural unemployment refers to the mismatch between the number of people looking for jobs and the number of jobs available. It is bad news both for those who suffer from it and for the society in which they live. People out of work for long periods tend to have poorer health than average. The structurally unemployed also squeeze social-security budgets.

Structural unemployment in advanced economies has been rising for decades, as jobs in industries like mining and manufacturing have withered. In Britain between 1984 and 1992, employment in coal mining fell by 77% and in steelmaking by 72%. Communities that were built around a single profession were devastated. Many of the people affected only had experience of a specific, high-skill job. They did not have the skills or attributes needed to be successful in many service-sector jobs (such as working in a call centre or in a restaurant). Hence they were structurally unemployed. A different problem may be afflicting advanced economies today. The downturn was truly nasty and has lasted for years. Many people gave up looking for a job and withdrew from the labour force. In America the number of these “discouraged workers” jumped from 370,000 in 2007 to 1.2m in 2010. (Today it is twice its 2007 level.) Those who have been unemployed for more than a year are only one-third as likely to find a job as those unemployed for fewer than six months: employers believe that those unemployed for shorter periods of time are more motivated and skilled. Long-term unemployment can thus turn into structural unemployment.

Chosen excerpts by Job Market Monitor. Read the whole story at  The Economist explains: The three types of unemployment | The Economist.

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