Unemployment occurs when a person who is actively searching for employment is unable to find work. The most frequently cited measure of unemployment is the unemployment rate. This is the number of unemployed persons divided by the number of people in the labor force.
Unemployment is often used as a measure of the health of the economy. There are three types of unemployment frequently referenced in economics,
1. Structural Unemployment – Changes occur in market economies such that demand increases for some jobs skills and decreases for others. For example, the invention of the automobile increased demand for automobile mechanics and decreased demand for horse shoe makers.
·2. Frictional Unemployment – This occurs when workers are voluntarily between jobs. This can take time as the individual searches for a better job, a new location, or other factors that can delay employment.
·3. Cyclical Unemployment – This occurs due to downturns in overall business activity. When business cycles are at their peak, cyclical unemployment will be low. If the business cycle is low, cyclical unemployment will rise.
The natural rate of unemployment is that amount of unemployment that occurs naturally due to imperfect information and job shopping. It is the rate of unemployment that is expected when an economy is operating at full capacity.