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Structural Unemployment And Cyclical Unemployment In The United States

2703 words - 11 pages

The high and persistent levels of unemployment in the United States have become one of the most debated topics among economists, policy makers and the unemployed for more than a decade; especially its impact and best approach to resolving the increasing unemployment rates. It is important to note that as much of a global phenomenon unemployment it is, unemployment occurs in numerous forms, economists have broken down unemployment into three main types: Frictional, structural and cyclical. The in-cooperation of these forms is significant to this paper for better understanding of current trends and identifying characteristics of structural unemployment.

 Frictional Unemployment arises from the ever-present movement of people into and out of jobs, it depicts the period where the quantity of labor demanded just equals the quantity of labor supplied at going market wage1. Examples include first time job searchers like college graduates or previously employed workers who are returning to work. A pattern of the matching process occurs in frictional unemployment similar to structural unemployment but the distinctive features are frictional unemployment is more of a voluntary nature and it’s a lot shorter compared to structural unemployment2.

 Structural unemployment can be defined as a form of unemployment where at a given wage rate, the quantity of labor supplied exceeds the quantity of labor demanded because there is a fundamental mismatch between the number of

1 Ehrenberg,R.G.and Robert S.S. (2012).Modern Labor Economics:Theory and Public Policy,11thEdition.Boston,MA:Pearson Education,Inc. p 502
2 Ibid p 501-502

people that want to work and the number of jobs available that consequently lengthen unemployment3. It’s usually as a result of mismatch between the skills or location of jobless worker and the skills or location required by available jobs, the composition of the unemployed and certain characteristics of the labor market institutionssuch as wage replacement rate and duration of unemployment benefits4.

 Cyclical unemployment or Keynesian unemployment occurs when there is deficiency or decrease in the demand for goods and services in an economy5. It occurs when aggregate demand reduces and there aren’t enough jobs for people that wish to work. Cyclical unemployment is affected and caused mostly by market forces6; reduction in the demand for goods and services in an employer’s mind usually means fewer workers are needed so they adjust by temporarily laying off workers and cutting hours of employees retained to fill reduced product demand. Professor Feld man in his unemployment lecture said “Employers usually don’t start hiring immediately when demand begins to rise until they are confident that economic growth will continue the recall experienced workers or hire new ones” this is because of the fear of market instability or market fluctuations in a weak economy.

3 Ehrenberg,R.G.and Robert S.S. (2012).Modern...

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