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Unemployment is a typical phenomenon in all countries due to the limited labor market and its demands. However, the level of unemployment and its prevailing types can differ significantly depending on the state of the economies of countries and the policies they use to combat unemployment. Nevertheless, in most cases, such three types of unemployment as frictional, structural, and cyclical exist in any country.
The frictional type is caused by the temporary unemployment of people looking for a new job or “between jobs.” People find themselves in the “unemployment pool” for various reasons, for example, after being fired or laid off at the end of seasonal or project work, searching for better working conditions, or a new field of work. In addition, a part of this pool is made up of young people and graduates who are looking for their first job. The “unemployment pool” is permanent as people looking for work are constantly changing; therefore, frictional unemployment is also constant.
Structural unemployment arises due to the mismatch between jobs and job seekers. Most often, this type of unemployment is caused by the fact that employers are looking for specialists who do not have the necessary skills to do the job. At the same time, people who have highly specialized skills that are no longer in demand, for example, due to automation, must acquire new skills to find a job. For this reason, this type of unemployment is long-term and occurs even when the country’s economy is in good condition.
Cyclical unemployment is caused by a decrease in demand due to changes in the business cycle. When the need for goods or services decreases, companies require fewer workers, reducing the number of jobs. The opposite situation is also possible, since as demand rises, the need for people to do the work increases. This type of unemployment is associated with the state of the economy, and a decrease in its level is usually associated with an economic decline. The COVID-19 pandemic is an example of cyclical unemployment as millions of people have lost their jobs due to reduced demand for most services and goods. However, according to the Bureau of Labor Statistics, the US unemployment rate in June 2021 is only 5.9%.
Another indicator that reflects the state of the economy and is partially related to unemployment is inflation. Inflation occurs when the money supply exceeds available goods and services and is associated with budget deficit financing. Inflation also differs in types such as demand-pull, cost-push, deficit-induced, currency, and credit inflation. Currency inflation is caused by the printing of currency notes, while credit inflation results from the issuance of loans to a population more than the economy needs. Deficit-induced inflation is caused by the fact that a country’s budget expenditures exceed revenue, which requires additional printing of money and increases prices to close the gap.
Demand-pull is another type of inflation, which is caused by the fact that the aggregate demand for goods and services exceeds the aggregate supply. In other words, the population has more money than the business offers goods, so prices rise to equalize the balance of supply and demand. A similar reason describes cost-push inflation, which arises from higher raw material prices and higher wages, which leads to a decrease in the aggregate supply. Consequently, prices rise as demand does not match supply. This classification characterizes inflation by causes.
In addition, inflation differs in the rate or speed of price growth and has such types as creeping, walking, galloping, and hyperinflation. Creeping and walking inflation refer to moderate rates, while galloping and hyperinflation have a high price growth rate and are dangerous for the economy. According to the Bureau of Labor Statistics, the rate of inflation based on the CPI for the United States is 0.9%. Consequently, inflation rates are relatively low and are controlled by the government.
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