Natural Unemployment
Candlefocus EditorNatural unemployment is an inevitable part of the free market economy, representing the presence of workers who are unable to get hired due to insufficient experience or skills and of positions which cannot be filled due to larger macroeconomic factors. The U.S. Bureau of Labor Statistics (BLS) identifies four types of natural unemployment:
1. Frictional unemployment occurs when workers take the time to search for a job that is best suited to their skills, education and experience. This includes job-seekers who turn down intermediate positions in the hopes of finding a better fit. Frictional unemployment also occurs when employers take their time to hire, preferring to go through interviews and vetting processes to find the best candidate for the job.
2. Structural unemployment is caused by mismatches between people’s skills and the job market. Structural unemployment happens when available jobs require different skills from the ones a worker has been trained for or when economic changes have made the worker’s skills obsolete. It also occurs when workers are located in geographic regions where their skills are no longer in demand due to the changing nature of that region’s economy.
3. Seasonal unemployment is caused by the natural fluctuations in labor demand due to seasonal changes in production or activity. It is most commonly observed in industries such as agriculture, construction and tourism whose hiring patterns follow natural patterns of change.
4. Classical unemployment occurs due to forces related to the overall macroeconomy such as a deficiency in aggregate demand. Classical unemployment is the result of reduced expansionary fiscal policies, supply-side issues, or the existence of monopsony.
Natural unemployment is an unavoidable part of any economy. But in general it can be mitigated through the right kind of policy choices. Educating about new technology, investing in retraining programmes, or providing subsidies for job-seekers to locate in regions where their skills can be matched with job demands, can all help reduce the level of natural unemployment by fostering a better fungibility of labor. Additionally, economic policies that can help spur aggregate demand in the economy, particularly during times of downturn, may have some limited ability to reduce natural unemployment.