Frictional and structural unemployment are two major types of unemployment used by economists to describe the country's overall unemployment rates. Knowing the difference between these two major types of unemployment can help you gain a better understanding of the national economy as it relates to jobs and job loss.
Frictional unemployment is a term economists use to describe people who are voluntarily unemployed because they are choosing to change career fields or deciding to relocate. Economist also use this term when referring to the time it takes employers to match a job opening to a suitable employee. Economists consider frictional unemployment as temporary because the rates often increase during times of economic growth and decrease during economic downturns.
Frictional Unemployment Example
During an economic downturn, the frictional unemployment rate tends to be lower because there are fewer jobs available. As a result, people choose to stay at their current jobs because they fear they will not be able to find work should they quit. When the economy is growing, there tends to be a greater number of jobs available. As a result, people may take advantage of this economic situation by choosing to leave their current positions to change career fields or to move.
Structural unemployment occurs when a large portion of unemployed individuals do not possess the necessary skills employers are seeking. Structural unemployment also refers to unemployment due to major economic changes in consumer demand as well major technological advances. Economists consider structural unemployment as more permanent than frictional. Also, unlike frictional unemployment, economists do not consider structural unemployment to be voluntary.
Structural Unemployment Examples
The technological advances in the auto industry are a good example of structural unemployment. In this industry, the automation of product manufacturing resulted in automated machines replacing many skilled assembly line employees, which led to substantial job losses. Since these advances impacted automobile production industry-wide, the demand for skilled assembly line workers decreased, causing structural unemployment.
Consumer demand can also lead to structural unemployment. For example, as consumer demand for digital music increases, the demand for other media formats such as CDs decreases. Consumers purchase fewer CDs, causing businesses that manufacture CDs to cut production, resulting in employee layoffs and increased structural unemployment.