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 within an economy are:
1. Frictional Unemployment: This type of unemployment occurs when individuals are temporarily between jobs. It may be due to individuals changing jobs, entering the job market for the first time, or re-entering the job market after a period of absence. For example, a recent college graduate who is searching for their first job would be considered frictionally unemployed.
2. Structural Unemployment: Structural unemployment happens when there is a mismatch between the skills of job seekers and the requirements of available jobs. This can occur due to changes in technology, shifts in consumer demand, or changes in the structure of the economy. An example of structural unemployment is when workers in a declining industry, such as coal mining, are unable to find new jobs because their skills are not transferable to growing industries like renewable energy.
3. Cyclical Unemployment: Cyclical unemployment is caused by fluctuations in the business cycle, particularly during economic downturns or recessions. When businesses are not operating at full capacity, they may lay off workers due to decreased demand for goods and services. An example of cyclical unemployment is when a manufacturing company lays off workers during a recession because consumers are buying fewer goods.