The population of an economy is divided into two categories, the economically active and the economically inactive. The economically active population (labor force) or working population refers to the population that is willing and able to work, including those actively engaged in the production of goods and services (employed) and those who are unemployed. Whereas, unemployed refers to people who are willing and a capable of work but are unable to find suitable paid employment. The next category, the economically inactive population refers to people who are neither working nor looking for jobs. Examples include housewives, full time students, invalids,those below the legal age for work, old and retired persons.
Unemployment is of different types. The important types of unemployment are:
- Structural unemployment: This is a type of unemployment caused mainly by the change in the development strategy adopted by an economy. For example, suppose a country basically agricultural in nature, plans to adopt industrialization as a strategy. This will result in displacement of labor in agriculture and not all of them can be accommodated in the industries. This type of unemployment caused is called Structural unemployment. This type of unemployment is also known as the chronic unemployment or the Marxian or long-term unemployment. It is mostly to be found in the underdeveloped countries. This type of unemployment is due to the deficiency of capital resource sin relation to their demand. The problem in the underdeveloped countries is to get rid of this age-old chronic unemployment by accelerating the process of economic growth. In other words, structural unemployment results from a mismatch between the demand for labor and the ability of the workers.
- Cyclical unemployment: Every economy goes through the ups and downs in the process of development. This type of economic fluctuations is studied through the behavior of business cycles. Hence, during the period of inflation, the unemployment will be less and during the period of depression unemployment will be more. Such type of unemployment is caused mainly because of the deficiency of effective demand. Keynes has discussed this type of unemployment in his theory. Such unemployment is caused due to the economic fluctuations and every country will experience this type of unemployment.
- Frictional unemployment: This is another type of unemployment which is caused by shift in the productive effort. This type of unemployment is caused by industrial friction, such as, immobility of labor, ignorance of job opportunities, shortage of raw materials and breakdown of machinery,etc. Jobs may exist, yet the workers may be unable to fill them either because they do not possess the necessary skill, or because they are not aware of the existence of such jobs.They may remain unemployed on account of the shortage of raw materials, or mechanical defects in the working of plants. On average it will take an individual a reasonable period of time for him or her to search for the right job. This creates unemployment while they look and this type of unemployment is normal and temporary in nature. The more efficiently the job market is matching people to jobs, the lower this form of unemployment will be. However, if there is imperfect information and people don’t get to hear of jobs available that may suit them,then frictional unemployment will be higher. Therefore, the better the economy is doing, the lower this type of unemployment is likely to occur. An economy which is flexible can quickly solve this type of unemployment.
- Seasonal unemployment: This type of unemployment is very closely linked with the seasonality in production in any sector. For example, in the agricultural sector, during the harvest season, there is heavy demand for labor. All unemployed laborers will get work. But once the harvest season is over, these laborers remain unemployed.
- Under-employment or disguised unemployment: This is the type of unemployment which is never practically seen, but only experienced. Suppose a job which can be performed by just 10 worker, has in reality has 20 workers, then the excess 10 workers who are not actually required are said to be under employed or disguised unemployed. In other words, the surplus labor do not make any addition to the output. Technically, their marginal product is zero. Such a situation is called wider-employment or disguised unemployment.
- Educated unemployment: This type of unemployment is found among the educated persons. Though there are different levels of education, at any level, if a qualified person is unemployed, then he adds to the number of educated unemployment.
- Rural and urban unemployment: Depending upon where there is unemployment, we may classify unemployment as rural and urban unemployment.