APE 16

Types of Unemployment

There are three types of unemployment:


Frictional unemployment includes people who are temporarily between jobs. They may have

quit one job to find another, or they could be trying to find the best opportunity after graduating from high school or college.

Cyclical unemployment includes people who are not working because firms do not need their

labor due to a lack of demand or a downturn in the business cycle. For example, if people are

not buying many goods and services, workers are laid off.


Structural unemployment involves mismatches between job seekers and job openings. Unemployed people who lack skills or do not have sufficient education are structurally unemployed.

At full employment, we have frictional and structural unemployment, but cyclical unemployment would be zero.

At full employment, the level of unemployment is called the natural rate of unemployment.