Alright. Now let's discuss the 3 types of unemployment: Frictional, Structural, and Cyclical Unemployment. Let's check it out. Let's start here with Frictional Unemployment. So, Frictional Unemployment is a short-term unemployment that arises when workers are in between jobs. I like to think of it as the friction that occurs between jobs. We have to try to remember each of these separately. It's the friction that occurs between jobs. What happens is, when someone leaves a job or they're laid off, they start the job search process. It's the process of looking for a suitable job. Each worker is going to have some set of skills and they're going to need to find a job that matches those skills. Along with that, we've got seasonal unemployment that's included here in frictional unemployment because it's in between jobs. If you have a job as a Santa's elf and the Christmas season's over, you've got to find another job. That's frictional unemployment. We say that frictional unemployment is okay. It's going to occur because it's just finding a good match for a job. We want all of the workers to have jobs that match their skills well. A good job match increases job satisfaction and productivity. So, we say that frictional unemployment is okay in that situation. An example of why frictional unemployment exists: Let's say there's a job opening for a pastry chef. However, you're an unemployed electrical engineer; that's not a good fit for you. You should be looking for an engineering job even though there is this job available; that job will be better filled by someone who's trained as a chef. Workers still have marketable skills when it comes to frictional unemployment, so they're just in between jobs where they can use those skills.
However, let's look at structural unemployment here. Structural unemployment is a bigger problem. This is longer-term unemployment resulting from the mismatch of worker skills to the available jobs. Now, we're saying that the skills that workers have built up, the human capital that they have, what they know how to do is not really relevant anymore. An example of this is when there were a lot of 2D animators in a 3D world. When Pixar movies started taking off, you didn't see so many 2D animations anymore. You saw movies with 3D characters. Those 2D animators found themselves in a tough spot because they spent their life learning how to draw and how to do 2D animation, and those skills weren't as marketable anymore. We say that structural unemployment is a serious problem because the workers' skills are not marketable. This is a changing job structure. When we say structural unemployment, it's because the job structure of the economy has changed. Now, the skills the workers have are no longer able to find jobs that match their skills. What's going to happen is they'll need additional training, education, or to relocate to a new place where their skills are suitable. Structural unemployment is worse because now, the worker's skills are unmarketable.
Finally, we have cyclical unemployment. Cyclical unemployment is unemployment caused by the business cycle. The business cycle, that's where we get cyclical and it occurs during a recession specifically. A recession is where we have more unemployment; the economy is on a downturn, there's less production, and higher unemployment. But then the recession will end, and that unemployment will go away. People will get their jobs back. During the recession in 2008, there were a lot of companies that laid off workers, but as the economy recovered, they rehired those workers. People got jobs back again. Cyclical unemployment is part of the business cycle. It's going to happen as we go into recessions, as the business cycle continues its loop, and it comes from the lack of demand for goods and services. If we think about Ford Motor Company, the economy is in a recession, nobody's buying cars, so they don't need to be producing cars. There's a lack of demand, so there's also a lack of demand for the workers. Cool?
Let's pause right here, and we're going to discuss the idea of full employment, natural unemployment, and a few more key terms when it comes to unemployment. But what you want to know here is that these are the 3 types of unemployment and you're going to want to be able to distinguish between frictional, structural, and cyclical. Cool? Let's pause and we'll continue in the next.
