TYPES OF UNEMPLOYMENT
A person can be either in the labour force or not in the labour force of an economy. The person not included in the labour force includes those who are retired, too ill to work, keeping the house, or simply not looking for work. On the other hand, persons counted under the category labour force includes those who are employed or unemployed. By employed persons we mean those who perform any paid work (thus housewives are not included) and those who have jobs. On the other hand, the unemployed as a category includes people who are not employed but are actively looking for work. Thus while considering unemployment we do not take into account those who are not in the labour force.
There are three kinds of unemployment, viz., frictional, structural and cyclical. Fictional unemployment takes place because people switch over from one job to another. In many cases the tenure of job gets over and workers remain unemployed till they get another job. In other cases workers migrate from one region to another in search of better jobs or opt to remain out of job for short time periods. Frictional unemployment takes place because in an economy with imperfect information job search and matching is not smooth and there are frictions in the economy. Structural unemployment, on the other hand, results from the mismatch between supply and demand for different kinds of jobs. For example, in India in early 1990s, when the information technology sector witnessed a surge in growth, there was a scarcity of computer professionals. In recent years, in response to policy changes, a number of private airlines have come up in India and there is an acute shortage of pilots. Structural unemployment takes place largely due to structural shifts in an economy and adjustments ,to such shifts take time. Cyclical unemployment arises due to fluctuations in aggregate demand. When aggregate demand declines, there is simultaneous decline in the demand for labour and consequent increase in unemployment. On the other hand, a general boom in the economy increases demand for labour and unemployment decreases. Thus overall employment is pro-cyclical in nature.
Empirical data shows that the labour force in an economy is much less than the total population in the working age group. In the US, for example, for which data are readily.available, labour force constitutes about two-third of the adult population. The percentage of population in the labour force, however, varies across countries and depends upon the level of development and social traditions. The rate of unemployment u is defined as the ratio of unemployed persons to total labour force. The rate of unemployment varies across countries and for a country, over time.