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People have their resumes reviewed during the Arizona Workforce Connection Career Expo at the Arizona
State Fair Grounds on March 31, 2010 in Phoenix, Arizona. Photo: Joshua Lott/Getty Images
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By Kimberly Amadeo
Updated August 02, 2017
There are seven causes of unemployment. Four cause frictional unemployment. This type of unemployment is
when employees leave their job to find a better one. Two cause structural unemployment. That's when workers'
skills or income requirements no longer match the jobs available. The seventh cause leads to cyclical
unemployment.
One reason for unemployment is voluntary. Some of the unemployed have saved enough money so they can
quit unfulfilling jobs. They have the luxury to search until they find just the right opportunity.
The second cause is when workers must move for unrelated reasons. They are unemployed until they find a
position in the new town.
The third reason is when new workers enter the workforce. That includes students who graduate from high
school, college or any higher degree program. They look for a job that fits their new skills and qualifications.
The fourth reason is when job seekers re-enter the workforce. These are people who went through a period in
their lives when they stopped looking for work. They could have stopped working to raise children, get married
or care for elderly relatives.
These four situations are an unavoidable part of the job search process.
Structural unemployment is neither voluntary nor short-term. These next two causes usually lead to long-term
unemployment.
The fifth cause is advances in technology. That's when computers or robots replace workers. Most of these
workers need more training before they can get a new job in their field.
The sixth cause is job outsourcing. That's when a company moves its manufacturing or call centers to another
country. Labor costs are cheaper in countries with a lower cost of living. That occurred in many states
after NAFTA was signed in 1994. Many manufacturing jobs moved to Mexico. It also occurred once workers
in China and India gained the skills needed by American companies.
Low consumer demand creates cyclical unemployment. Companies lose too much profit when demand fall. If
they don't expect sales to pick up anytime soon, they must lay off workers.
The higher unemployment causes consumer demand to drop even more, which is why it’s cyclical. It results in
large-scale unemployment. Examples include the financial crisis of 2008 and the Great Depression of 1929.
Demand-deficient unemployment sometimes occurs when wages are too high. That's one of the arguments
against higher minimum wages. Critics argue that when businesses are forced to pay a higher salary per person,
they must let other workers go. In some price-sensitive industries, that's true. But most companies can pass the
cost onto their customers. (Source: "Structural/Frictional and Demand-Deficit Unemployment in Local Labor
Markets," National Bureau of Economic Research, July 1988.)
If someone gives up looking for work, on the other hand, the BLS does not count them in the unemployment
rate.
If someone retires, goes back to school or leaves the work force to take care of children or other family
members, that is not unemployment. That's because they no longer look for work. Even if they would prefer a
job, the BLS doesn't count them as unemployed unless they looked in the past month.
People who have searched in the past year, but not the past month, are called marginally unemployed. They are
included in the BLS’s “real unemployment rate.” Some people say the government undercounts unemployment
by reporting the official rate, rather than the “real” rate.