Question

What type of unemployment (cyclical, frictional, or structural) applies to each of the following: a. landscapers laid off in response to drop in new housing construction during a recession. b. coal miners laid off due to EPA regulations that shut down coal fired power c. a financial analyst who quits his/her job in c. Chicago and is pursing similar work in Arizona d. printers laid off due to drop in demand for printed catalogues and flyers as firms go the internet to promote an advertise their products. e. factory workers in the U.S. laid off as the plants shut down and move to Mexico and Ireland.

Short answer

a. Cyclical unemployment b. Structural unemployment c. Frictional unemployment d. Structural unemployment e. Structural unemployment

Step-by-step solution

Case a: landscapers laid off in response to drop in new housing construction during a recession.

This situation involves a drop in the demand for labor due to an economic downturn, which indicates that it is a case of cyclical unemployment. Cyclical unemployment occurs when there is not enough demand in the economy to provide jobs for everyone who wants to work.

Case b: coal miners laid off due to EPA regulations that shut down coal-fired power

This situation involves coal miners being laid off due to changes in regulations and the decline of an entire industry. This is an example of structural unemployment. Structural unemployment occurs when the skills of some workers don't match the skills that employers are seeking.

Case c: a financial analyst who quits his/her job in Chicago and is pursuing similar work in Arizona

This situation involves a worker voluntarily leaving their job to find similar work in another location. This is an example of frictional unemployment. Frictional unemployment occurs when people are between jobs or are looking for their first job.

Case d: printers laid off due to drop in demand for printed catalogues and flyers as firms go to the internet to promote and advertise their products.

This situation involves workers being laid off due to technological changes. This is an example of structural unemployment. As mentioned before, structural unemployment occurs when the skills of some workers don't match the skills that employers are seeking. In this case, the demand for printed materials decreased due to the rise of digital marketing, leading to a decline in the market for printers.

Case e: factory workers in the U.S. laid off as the plants shut down and move to Mexico and Ireland.

This situation involves workers losing their jobs due to plants moving to different countries. This is an example of structural unemployment as well, since the labor market in the U.S. no longer demands these specific workers. The driving factor behind this structural unemployment could be cheaper labor costs or more favorable business environments in other countries, which leads to a shift in the structure of the economy.

Key concepts

Cyclical Unemployment

Cyclical unemployment is a type of unemployment that results from fluctuations in the economic cycle. When the economy is in a recession, companies often face lower demand for their products and services.
This decrease in demand leads to reduced revenues. As a result, businesses cut costs by laying off workers, leading to higher unemployment rates.
It is vital to note that cyclical unemployment is not related to an individual's skills or abilities. Even highly skilled workers may find themselves unemployed if the economy is down. For example, in times of economic downturns, industries such as construction often see a decrease in demand for new housing. This was the case with landscapers who were laid off due to a drop in housing construction during a recession.

• Not related to skill level or mismatches.
• Directly linked to economic cycles.
• Can often recover when the economy improves.

Addressing cyclical unemployment typically requires policies that boost economic activity, such as government stimulus packages or monetary measures to encourage spending and investment.

Structural Unemployment

Structural unemployment arises when there is a fundamental change in an economy that makes certain skills obsolete or less in demand. This form of unemployment occurs because the skills workers possess no longer match the skills needed by employers.
Technological advancements, shifts in consumer preferences, and globalization are common causes that lead to this mismatch.
Consider the scenario of coal miners laid off due to environmental regulations that limit coal use—this is an illustration of structural unemployment. The decline of the coal industry has led to a reduced demand for the specific skills that coal miners possess.

• Caused by long-term shifts and changes in the economy.
• Skills mismatch is a central issue.
• Tends to be more persistent and challenging to overcome.

Solving structural unemployment often involves retraining workers to equip them with the skills needed in new industries or emerging sectors.

Frictional Unemployment

Frictional unemployment is a natural form of unemployment experienced by workers who are in-between jobs. This kind of unemployment is typically short-term and occurs when workers are voluntarily leaving their jobs to find new positions.
It can also happen when recent graduates enter the workforce for the first time.
An example of frictional unemployment would be a financial analyst who quits her job in Chicago to seek similar opportunities in Arizona. Her unemployment is transitional as she searches for a new role aligning with her qualifications and career goals.

• Characterized by voluntary departures.
• Short-term and transitional.
• A sign of a healthy, dynamic job market.

While frictional unemployment is inevitable in any economy, improving job matching services and providing better information about available job opportunities can help reduce the time individuals spend unemployed.