Explain the three main types of unemployment experienced within an economy. Provide at least one example demonstrating each type of unemployment.(4 points)
The three main types of unemployment experienced within an economy are structural unemployment, frictional unemployment, and cyclical unemployment.
1. Structural unemployment: This type of unemployment occurs when there is a mismatch between the skills and qualifications of job seekers and the available job opportunities in the market. It is caused by changes in technology, shifts in the economy, or changes in consumer demand. For example, if the demand for typewriters declines due to the widespread use of computers, workers who are skilled in typewriter manufacturing may experience structural unemployment as they struggle to find jobs in other industries.
2. Frictional unemployment: Frictional unemployment refers to temporary unemployment that occurs when individuals are in the process of transitioning between jobs or entering the workforce for the first time. It happens due to the time it takes for job seekers to search and find suitable job vacancies. For instance, recent college graduates who are actively seeking employment and going through interviews but have not yet secured a job are experiencing frictional unemployment.
3. Cyclical unemployment: This type of unemployment is directly related to the business or economic cycle. When there is a decline in overall economic activity, such as during a recession or economic downturn, companies may need to lay off workers or reduce their workforce, leading to cyclical unemployment. A prime example of cyclical unemployment occurred during the global financial crisis of 2008-2009 when numerous businesses had to downsize or shut down, resulting in a significant increase in unemployment rates worldwide.