Economics Questions

SU is another type of unemployment that is caused by the mismatch that exists between the jobs that are available in a country’s economy and the skill sets that are available to perform the available jobs. So for example, suppose in the US economy in a given year there are 20,000 jobs that are available for mechanical engineers and there are simultaneously say, 8,000 architects who are unemployed in the economy. Those 8,000 architects would be considered to be structurally employed because jobs are available to be filled but architects are not mechanically engineers and as such they are not equipped with the necessary skills to perform or match the jobs that are available in the economy. The opposite would be equally valid, namely, if 20,000 jobs were available for architects and say 10,000 mechanically engineers were unemployed. Here, the mechanical engineers would be structurally unemployed as jobs are available but the unemployed mechanical engineers do not have the skill sets to do the available jobs of architects.

It's also important to note that sometimes SU results in an economy when firms shift jobs from one geographic locality to another. For example, if a glass cutting plant relocates its operation from say Fairfax County to Loss Angeles or China or India etc., the glass cutters who even if they are invited by the company’s management to relocate to LA or China or India, if for whatever reason, family etc. they cannot relocate, they would become structurally unemployed because potentially their skills as glass cutters would become redundant if there are no jobs available for them as glass cutters though other jobs are available such as bus drivers, welders, AC technicians etc. Hence, they would require retraining as their skills as glass cutters would not match the skill sets required for the available jobs.

•Technological Unemployment or TU

TU is another type of unemployment which results in an economy when machines, robots, computers, automation such as automated telephone systems etc. replace or substitute for human labor. For example, when robots replace human welders in auto plants, or when self-check-out machines or ATMs replace bank tellers etc. such workers who are replaced by these technological gadgets are said to be technologically unemployed thus resulting in technological unemployment. AI or artificial intelligence is creating all kinds of disruption in the global labor force and is forecasted to displace millions of workers global with driverless cars and other AI technologies. The critical question seems to be, will each economy and the global economy be able to grow fast enough to absorb through retraining etc. the workers displaced by AI. In other words, will AI and other technologies be net killers of jobs or net creators of jobs globally and in each economy?

•Cyclical Unemployment or CU

CU is the type of unemployment that is the result of the periodic downturn or bust in the business cycle of market economies or capitalist economies due to a significant weakening of demand for cars, houses, foods, clothing, education, health care and a range of other goods and services that inevitably result in these economies due to layoffs, furlough, more part-time labor etc. during such downturns in the business cycle that result from recession and depression. Thus, auto workers, construction workers, sales agents etc. who lose their jobs during such downturns are said to be cyclically unemployed in an economy. However, once the economy recovers and starts to grow again through the appropriate fiscal and monetary policies, those cyclically unemployed workers or several of them are likely to find jobs again sometimes with their former or new employers.

•Seasonal Unemployment or SeU

SeU is the type of unemployment that results in a country’s labor force due to the seasonal changes in the demand for some types of labor that are sensitive to changes in the seasons that are inherent in a calendar year. So for example, during the summer season in any calendar year, the demand for the labor services of life guards at swimming pools at hotels, beaches, apartment complexes etc. will be high. Likewise, during the summer season, the demand for the labor services of construction workers will be higher than in the winter season because it is so much more favorable and pleasant to dig the foundation for buildings or to do roof work or exterior paintings than in the winter when the temperature maybe-10 ºF. On the contrary, during the winter season, the demand for the labor services of life guards and construction workers will decline (fall) and the demand for the labor services of ski operators, snow blowers, snow cleaners etc. There is also an increased demand for the labor services of college and high school students on Christmas break by retail stores and other businesses who are then let go as they return to college/school after the Christmas break.

•Classical Unemployment:

(a)Voluntary Unemployment or VU

VU is one type of Classical Unemployment that results in a capitalist market economy whenever the price of labor or the wage rate is set below the market equilibrium wage rate in labor markets, thus creating more demand for labor say of carpenters by households, hospitals, schools etc. than the supply of labor by carpenters given that the price of labor will stimulate more demand and less supply in keeping with the universal laws of demand and supply. Thus, VU results in a country’s labor market when workers such as carpenters and others believe that the wage rate set by market forces (employers and employees) below the market equilibrium wage rate is too low and is therefore not “worth their while” to supply “too much of their labor.” Hence, though they can find more jobs because employers are will to employ more of them, they withhold the supply of their labor as if they are volunteering to be unemployed. Hence, the term used to describe this type of unemployment being Voluntary Unemployment or VU! See Supply-Demand Model for Carpenters’ labor.

(b)Involuntary Unemployment or IU

IU is another type of Classical Unemployment that results in a capitalist market economy whenever the price of labor or the wage rate is set above the market equilibrium wage rate in labor markets, thus creating more supply for labor say of carpenters by carpenters than the demand of the labor services of carpenters by employers in households, schools etc. given that the price of labor will stimulate more supply and less demand in keeping with the universal laws of supply and demand. Thus, IU results in a country’s labor market when workers such as carpenters and others believe that the wage rate set by market forces (employers and employees) above the market equilibrium wage rate is sufficiently high to incentivize them to supply much more of their labor which results in a surplus of labor in labor markets. Consequently, IU results when workers like carpenters are willing to work at the higher wage rate set above the market equilibrium though they are unable to find enough jobs given the lower demand for their labor services by employers who are willing to employ much less than those who are willing to work. Hence, the term used to describe this type of unemployment being Involuntary Unemployment or IU! See Supply-Demand Model for Carpenters’ labor.

•The Natural Rate of Unemployment or NRU=FU + SU

The NRU is simply put the type of unemployment which exists when an economy is said to be at full employment i.e. when an economy is operating at its full employment level which means that it is operating at the point of its full utilization capacity or the capacity for which an economy is engineered to operate.

Thus, the NRU is the sum total of two earlier discussed types of unemployment, namely, structural unemployment or SU and frictional unemployment or FU both of which exists even when an economy is operating at full employment i.e. even at full employment when an economy operates on its PPFC there will be unemployment which results from the mismatch between available skills and available jobs or SU on the one hand as well as workers in transition between jobs or FU.