In fact, different types of unemployment are caused by many different factors, with some of them even caused by more than one factor. Let’s take a look in details.
What causes cyclical unemployment?
- Cyclical unemployment is caused by the downturn and the recession stage of The Business Cycle when the demand for the output produced by businesses falls. Therefore, firms need fewer and fewer workers as they will be producing fewer goods and providing fewer services. Unemployed workers without steady monthly income will drastically reduce their spending causing the economic recession to deepen even further and last for a few years.
Example 1: After the stock market crash in 1929, the government did not step in right away to intervene in the economy. This delay led to the Great Depression which lasted 10 years and led to a 25% unemployment rate, according to TheBalance.com.
What causes structural unemployment?
- Structural unemployment is caused by changes in the economy resulting from changes in customers’ expenditure patterns as they enjoy higher incomes. As consumer tastes change, those once popular industries are now seeing decreasing demand which leads to significant job losses. Even though other expanding industries may require an increased number of workers, certain people are unable to find work, or find it difficult to transfer their knowledge and skills to other sectors and occupations.
Example 2: If airplanes, trains and delivery trucks become fully automated, skilled pilots and professionally qualified drivers would lose their jobs.
What causes frictional unemployment?
- Frictional unemployment is mainly caused by workers losing their jobs either because of being fired or laid off. They will be taking a substantial period of time to find new employment. While most people are able to find new employment fairly quickly, others take longer to land a new job.
- Another reason causing frictional unemployment is workers leaving their jobs due to dissatisfaction with working conditions.
- The next reason causing frictional unemployment includes a mismatch between worker’s qualifications and expectations, and jobs that are available on the job market. Therefore, the company is not willing to hire the worker who is not fully qualified for the job.
- The fourth reason causing frictional unemployment is relocation of a worker to a new city.
- The last reason causing frictional unemployment is fresh graduates entering the workforce who may find it very hard to land the first job.
Example 3: A female corporate lawyer had been working in-house at a multinational company in Tokyo, but she took a three-year break from job to take care of her newborn baby. Now when the baby is three-years old and can be sent to a childcare center during the day, the lawyer is looking forward to re-entering the job market. However, until she gets the new job, she will remain frictionally unemployed for a period of time.
What causes technological unemployment?
- Technological unemployment is caused by implementation of modern technologies that can replace human beings. The number of workers required in capital intensive industries such as high-end manufacturing, data processing, semiconductor manufacturing, energy and utilities, etc. is usually quite low.
Example 4: During World War II, The Bombe Machine compressed and decoded thousands of man-years worth of encrypted data in a matter of hours.
What causes regional unemployment?
- Regional unemployment is caused by disparities in employment opportunities between urban and rural areas; cities vs. villages. There is higher concentration of businesses, sports and entertainment events, public administration buildings and more convenient transportation networks in busy urban agglomerations. Hence, lower unemployment rate. On the other hand, remote rural areas and villages will have higher levels of unemployment than recorded in the downtown areas of big cities.
- Another reason causing regional unemployment is labor immobility. Those people who are not willing to relocate to other areas of the country for work, because of higher housing costs or family ties, will stay where they are even without the job.
Example 5: In 2020, the year of the COVID-19 outbreak, the unemployment rate of people aged 15-74 continued to vary widely across the EU regions according to Europa.eu. With the lowest unemployment rate recorded in the Polish region Wielkopolskie (1.8%), in two Czech regions: Central Bohemia (1.9%) and South-West (2.0%), one further Polish region, Lubuskie (2.2%), followed by three further Czech regions: Prague, North-East and South-East (all 2.3%). At the opposite end of the scale, the highest unemployment rates were registered in Mayotte (27.8%), an overseas region of France, the Spanish autonomous cities of Ceuta (24.5%) and Melilla (23.7%) and two Spanish regions, Canary Islands (22.6%) and Andalusia (22.3%).
What causes seasonal unemployment?
- Seasonal unemployment is caused by regular changes in demand for a product during different seasons of the year, mainly summer vs. winter. For example, beach resorts and ice-cream vendors tend to suffer from a lack of tourists and demand during the cold winter months, while winter ski resorts and winter jackets retailers have no customers during hot summer months.
What causes voluntary unemployment?
- Voluntary unemployment is caused when very low wages are being offered to a worker. So, the worker’s take-home pay is simply lower than the cost of living.
- Another reason causing voluntary unemployment is incompatibility of the worker’s experience, knowledge and skills with open positions. Therefore, the worker is not willing to accept the job that does not suit his expertise.
Example 6: In 1931, the UK cut unemployment benefits due to concerns over the budget deficit and the possibility of voluntary unemployment.
As you can see above, there are many reasons why people cannot find employment, even if they want to. And, there are many factors that can cause different types of unemployment, so each type of unemployment in the economy should be considered individually.
