In industrialized countries in which most people can earn a living only by working for others, being unable to find a job is a serious problem. Because of its human costs in deprivation and a feeling of rejection and personal failure, the extent of unemployment is widely used as a measure of workers’ welfare. The proportion of workers unemployed also shows how well a nation’s human resources are used and serves as an index of economic activity. Economists have described the types of unemployment as frictional, structural, and cyclical.
The first form of unemployment is Frictional unemployment. Frictional unemployment arises because workers seeking jobs do not find them immediately. While looking for work they are counted as unemployed. The amount of frictional unemployment depends on the frequency with which workers change jobs and the time it takes to find new ones. Job changes occur often in the United States. A January 1983 survey showed that more than 25 percent of all workers had been with their current employers one year or less. About a quarter of those unemployed at any particular time are employed one month later. This means that a considerable degree of unemployment in the United States is frictional and lasts only a short time. This type of unemployment could be reduced somewhat by more efficient placement services. When workers are free to quit their jobs, some frictional unemployment will always be present.
The second form of Unemployment is structural unemployment. Structural unemployment arises from an imbalance between the kinds of workers wanted by employers and the kinds of workers looking for jobs. The imbalances may be caused by inadequacy in skills, location, or personal characteristics. Technological developments, necessitate new skills in many industries, leaving those workers who have outdated skills without a job. A plant in a declining industry may close down or move to another area, throwing out of work those employees who are unable or unwilling to move. Workers with inadequate education or training and young workers with little or no experience may be unable to get jobs because employers believe that these employees would not produce enough to be worth paying the legal minimum wage or the rate agreed on with the union. On the other hand, even highly trained workers can be unemployed. This happened in the United States in the early 1970s, when the large numbers of new graduates with doctoral degrees in physics and mathematics exceeded the number of jobs available in those fields. If employers practice illegal job discrimination against any group because of sex, race, religion, age, or national origin, a high unemployment rate for these workers could result even when jobs are plentiful. Structural unemployment shows up most prominently in some cities, in some occupations or industries, for those with below average educational attainments, and for some other groups in the labor force. The third form of unemployment is cyclical unemployment.
Cyclical unemployment results from a general lack of demand for labor. When the business cycle turns downward, demand for goods and services drops. Consequently, workers are laid off. In the 19th century, the United States experienced depressions roughly every 20 years. A long and severe depression occurred in the 1890s, when unemployment reached about 18 percent of the civilian labor force, and four less severe depressions occurred in the first quarter of the 20th century. The worst depression in United States history was in the 1930s. At its height, one worker in four was unemployed, and some remained out of work for years.
In industrialized countries, with unemployment insurance and other forms of income maintenance, unemployment does not cause as great a hardship as it once did. Measures to stabilize the economy have made economic downturns briefer and less severe.