There are four reasons a person might be unemployed.  Below we’ll take each in turn: 

Cyclical Unemployment – As we discussed before, the business cycle can lead to unemployment as the demand for goods and services declines.  Sarah has a job at the Nissan factory in Smyrna Tennessee.  During the recession of 2008 she lost her job as the demand for new cars declined. 

Seasonal Unemployment – Some people have occupations that are seasonal by nature.  Eric works in the construction industry as a brick layer.  Each winter work becomes harder to find and Eric often finds himself unemployed until spring when construction activity picks back up. 

Frictional Unemployment – Like the next one, frictional unemployment is a bit abstract.  There are exactly 100 jobs in Saint Louis for a graphic designer.  There are exactly 100 qualified graphic designers looking for a job.  No problem, right?  But those graphic designers have to find, apply for, and land those jobs.  This takes time.  That’s what we refer to as friction.  In a world with perfect information, there’d be no frictional unemployment.  The employers would know exactly the best candidate.  The candidate would know their best employer.  Raul just finished his degree in information security and is looking for a job.  It’s a highly demanded major and so there should be no problem landing a job.  But in the meantime, he’s frictionally unemployed. 

Structural Unemployment – The last is the most difficult to both understand and, when we get to it, address.  Economies are dynamic.  Sometimes changes come along that make a whole industry obsolete.  What is the impact on the workers?  If jobs in the industry are highly specialized and the workers have been in that industry for a long time, they may find that they don’t have skills that are transferable elsewhere.  For example, in the 1970s the United States started facing increased competition in the auto industry.  Demand for US made cars declined and factories, located mostly in Michigan, had to lay off workers.  For a worker who had worked 20 years in an auto factory assembling drive trains, what work was available in an economy that was increasingly oriented toward computers?  Many of these workers found themselves unemployable because of their lack of relevant skills.  Square pegs in an economy full of round holes.  This is structural unemployment.