Unemployment
exists in every economy around the world.
In the US there are three main types of unemployment: structural,
frictional, and cyclical. The first two make up what is known as the natural unemployment
rate. The third rises
when demand falls, usually during recession. Typically there is
a combination of all three rates affecting the overall unemployment in an
economic and labor market at any given time.
There will always be some level of unemployment no
matter what type of economy we are experiencing - healthy or not. Although we
are currently experiencing the lowest unemployment rates in decades – the
actual lowest level of unemployment was 2.5% right after the Korean War. The highest level of unemployment was
experienced during the great depression at 25%.
A healthy indication of the labor market and
considered natural employment is a rate between 4.5 to 5%. We ae currently running at a rate of 3.7% -
which means there are more open jobs than eligible workers.
Here is a quick breakdown of the three main types of
unemployment:
Frictional
Unemployment
Frictional unemployment occurs when
workers leave their current jobs without a new job to go to - taking time off
to find new employment opportunities. Most
of the time workers leave voluntarily, either because they need to move, or
they've saved up enough money to allow them to look for a better job.
Frictional unemployment also occurs when
students are looking for that first job or when mothers are returning to the
workforce. It also happens when workers are fired or, in some cases, laid off
due to business-specific reasons, such as a plant closure.
Frictional unemployment is short-term and
a natural part of the job search process. In fact, frictional unemployment is
good for the economy, as it allows workers to move to jobs where they can be
more productive.
Structural Unemployment
Structural unemployment exists when
shifts occur in the economy that creates a mismatch between the skills workers
have and the skills needed by employers.
An example of this is an industry’s
replacement of machinery workers with automation and new technologies. Workers
now need to learn new skill sets to be able to operate the automation and new
technologies that replaced them. Those that don't learn need retraining for
other jobs or face long-term structural unemployment.
A long recession often creates structural
unemployment. If workers stay unemployed for too long, their skills have likely
become outdated. Unless they are willing and able to take a lower-level,
unskilled job, they may stay unemployed even when the economy recovers. If this
happens, structural unemployment leads to a higher rate of natural
unemployment.
Cyclical
Unemployment
Cyclical unemployment is not part of
the natural unemployment rate. It's caused by the expansion or contraction phases
of the business cycle.
An example of Cyclical unemployment is when the
demand for goods and services fall dramatically, forcing businesses to lay
off large numbers of workers to cut costs.
Cyclical unemployment tends to create the
most unemployment. This is because the laid-off workers have less money to buy
the goods and services they need, further lowering demand.
There are other forms of unemployment measures including: Long-Term, Real, Seasonal, Classical, and
Underemployment rates. But these main
three are the ones to know, understand, and keep track of in these economic
times.
Economists
use unemployment data as an economic indicator to assess the health of an
economy. So should we as talent acquisition leaders – the more we understand
the unemployment levels and reasons why they are what they are - then the more
we can adjust and customize our approach to attracting the talent we need to
fill our open jobs.
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