The Main Types of Unemployment (HSC SSCE Economics): Revision Notes

The Main Types of Unemployment

Understanding the different types of unemployment is essential for developing effective government policies to reduce joblessness. Each type has distinct causes and requires different policy responses. This note examines the seven main classifications of unemployment in the Australian economy.

Structural unemployment

Structural unemployment arises when fundamental changes occur within the economy. These changes may result from technological advances or shifts in consumer demand for goods and services. When industries decline, workers often find that their existing skills no longer match the requirements of emerging industries and new job opportunities.

This type of unemployment is particularly challenging because it involves a mismatch between workers' skills and employer needs. For example, manufacturing workers whose jobs are replaced by automation may struggle to transition into growing service industries without retraining.

Cyclical unemployment

Cyclical unemployment is directly linked to the ups and downs of the economic cycle. During economic downturns and recessions, aggregate demand falls, leading to reduced business activity and fewer employment opportunities. Conversely, during periods of strong economic growth, cyclical unemployment typically decreases as businesses expand and hire more workers.

Frictional unemployment

Frictional unemployment represents workers who are between jobs. These individuals have left one position but have not yet commenced another. This type of unemployment is a natural and inevitable feature of a dynamic labour market where workers seek better opportunities and employers search for suitable candidates.

The job matching process takes time. Workers invest effort in finding suitable positions that match their skills and preferences, while employers carefully screen candidates.

Improving the efficiency of job matching services can help reduce frictional unemployment. Job and skills databases enable faster connections between unemployed workers and available positions. Following the pandemic, there was evidence of "the Great Resignation" – a surge in workers changing jobs that occurred in the United States and, to a lesser extent, in Australia.

Seasonal unemployment

Seasonal unemployment occurs at predictable and regular times throughout the year due to the seasonal nature of certain types of work. This pattern repeats annually and can be anticipated.

Common examples include:

• Summer jobs (e.g. selling ice cream at beach kiosks)
• Christmas retail work (e.g. department store Santa Claus positions)
• The influx of school, university and TAFE graduates entering the labour market between December and March

Hidden unemployment

Hidden unemployment refers to people who would like to work but are not captured in official unemployment statistics. These individuals do not meet the ABS definition of unemployment because they are not actively seeking work, even though they are willing and able to work.

People may stop actively seeking employment for various reasons, including repeated rejection, family responsibilities, short-term illness, or study commitments. These individuals are known as discouraged jobseekers. For instance, a tour guide who lost their job during the COVID-19 pandemic might have decided not to seek alternative employment until international tourism resumed.

The presence of hidden unemployment appears in statistics as a decline in the labour force participation rate when these individuals cease job searching. However, they do not appear in unemployment figures.

Underemployment

Underemployment describes workers who are employed for fewer than 35 hours per week but would prefer to work additional hours. These individuals are classified as employed rather than unemployed, yet they represent a significant and growing dimension of Australia's labour market challenges.

Since 2014, the ABS has published monthly estimates of underemployment levels.

The long-term increase in underemployment reflects faster growth in part-time and casual employment compared to full-time positions in recent years.

Long-term unemployment

Long-term unemployment refers to individuals who have been without work for 12 months or longer. This form of unemployment typically results from structural factors and poses particularly stubborn policy challenges.

When a large pool of long-term unemployed exists, it becomes very difficult to reduce. While strong economic growth can prevent the pool from growing, growth alone is insufficient to solve the problem. Long-term unemployment often becomes permanent unemployment because individuals who remain jobless for extended periods find it increasingly difficult to secure employment, even when the economy improves.

The table above shows that a sharp increase in the proportion of long-term unemployed occurred during the early 1990s recession. Although long-term unemployment as a proportion of total unemployment declined significantly until 2008–09, it has increased since then. This excludes discouraged jobseekers who are not actively seeking work and therefore not counted in the long-term unemployed pool.

Hard-core unemployment

Hard-core unemployment represents the most severe form of joblessness. It refers to individuals who have been unemployed for so long that employers consider them effectively unemployable due to their personal circumstances.

Circumstances that may render someone unemployable include:

• Mental illness
• Physical disability
• Drug abuse
• Anti-social behaviour