Types of

Unemployment and
How Unemployment
is Measured

By Antonio and Derek

What is unemployment?

Unemployment is a situation where people in

the labour force are actively looking for jobs
but are currently unemployed. All
governments have a macroeconomic objective
of maintaining a low unemployment rate.
Types of unemployment:

It is possible to classify the causes of

unemployment into three categories:
1. Structural unemployment
2. Cyclical unemployment
3. Frictional unemployment
Structural
unemployment
• Occurs when there is a mismatch
between jobs and skills in the economy
• It usually happens as the structure of an
economy changes
• There is no longer a need for a specific
type of worker
• Many Western industries have relocated
production to China causing structural
unemployment in their economies
• Unless workers receive help to retrain,
they are often left unemployed or
underemployed
Cyclical
unemployment:
• Caused by a fall of total (aggregate)
demand in an economy
• This typically happens during a slow
down or recession
• At least one of the components of real
gross domestic product (rGDP) is
falling (consumption, investment,
government spending or net exports)
• The demand for labour is a demand
derived from the demand for
goods/services
• As output falls in the economy, firms
lay off workers
Frictional
unemployment:
• Occurs when workers are
between jobs
• This is usually short-term
unemployment
• Workers have voluntarily
left their previous job to
search for another
The Claimant Count
& Labour Force
Survey

Unemployment is often measured

using two different approaches
1. The International Labour
Organisation (ILO) Survey
2. The Claimant Count
The ILO Labour Force
Survey

• An extensive survey is sent to a random

sample of ≈ 60,000 households every
quarter
• Respondents self-determine if they are
unemployed based on the ILO criteria:
• Ready to work within the next two
weeks
• Have actively looked for work in the
past one month
• The same survey is used globally so it's
useful for making international
comparisons
The Claimant Count

• Counts the number of people claiming

unemployment benefits
• More stringent requirement to be
considered unemployed than with the
ILO survey
• Requires claimants to meet certain
criteria and excludes many such as:
• Those with savings
• People who claim pensions
• Married women who are looking
for a job
 Three metrics are commonly used when analysing the labour
Calculating the market in an economy.
unemployment rate:
Limitations of the
employment rate:

The employment rate could be increasing

even as the unemployment rate is increasing:
• May be caused by increased immigration
which causes working age population to
increase
• May be caused as people move from being
economically inactive to employed
Limitations of
unemployment rates:

Unemployment rates do not capture the

hidden unemployment that occurs in the
long term
• Workers look for a job but may eventually
give up and become economically inactive
• This actually improves the unemployment
rate as fewer people are actively seeking
work
Practice question:

The table provides information

Population style 80,000,000
about a country's labour market:
Labour force size 65,000,000
What is the unemployment rate of
this country? Number employed 44,000,000
1. 32.31%
2. 40%
Number of students 28,000,000
3. 20.24%
4. 12.5%