Types of Unemployment

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Types of Unemployment

Cyclical Unemployment

Cyclical unemployment refers to unemployment that occurs as a result of fluctuations in the business cycle or economic activity. During a recession, economic activity decreases which results in lower output and consumer spending, which can result in individuals being made unemployed.

What do economists mean by a recession? Quite simply, a recession can be defined as a significant decline in economic activity that lasts for a prolonged period which has significant negative impacts for those in the economy. A decline in economic activity is officially recorded as a recession after two consecutive quarters of contractions in GDP.

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Can you suggest some regularly seen examples of cyclical unemployment?

Structural Unemployment

Structural unemployment is the type of unemployment which often occurs after structural changes/significant changes to the economy. If there is significant structural change in an economy such as the closure or partial closure of a sector, then the economy often takes time to adapt.

This can often occur as a result of a skill shortage, the closure of an entire sector might result in demand for certain skills decreasing significantly.

The Mining Strikes of 1984/85:

There is perhaps no greater example of structural unemployment than the closure of a significant amount of mines in the 1980’s by Margaret Thatcher’s Conservative government. Thatcher believed that due to the increased availability of foreign imports of oil and gas, the British coal sector had become too costly and not worthwhile, and should be shut down.

Closure of coal mines was heavily contested and led to widespread mining strikes nationwide. Structural unemployment goes some way to explaining why mine closures were met with such widespread anger. The closure of the sector resulted in significant unemployment as the skills possessed by miners were no longer required. This resulted in the need for miners to retrain to find employment in another sector, or face unemployment. Resultantly, this closure contributed heavily to rising unemployment rates in the UK in the 1980’s.

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Whilst the mining reform was a significant contributor to the soaring unemployment rates of the 1980’s, significant economic uncertainty was also to blame. The UK Government implemented tight monetary policy, raising interest rates while attempting to curb inflation.

The Legacy of Structural Unemployment: Fast-forward to the present day United Kingdom and we can witness first-hand the long-term impact of structural unemployment. In 2023, it was announced that Jaguar Land Rover would be opening a £4bn factory in the United Kingdom, presenting significant economic benefit.

However, the generational reduction of manufacturing jobs in the UK has led to a skill-shortage to fulfil the 4000 jobs that this project will create. Make UK estimates that 36% of vacancies in manufacturing are difficult to fill as there is a skill shortage among applicants. Despite the strengthening of the manufacturing sector in the UK, it’s success is still suffering from the downturn over the 20th century.

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The threat posed by structural unemployment is particularly relevant of late, as we aim to transition from the burning of fossil fuels to more environmentally sustainable energy sources. However, if we were to simply shut down all fossil fuel companies immediately, there would be significant and damaging unemployment increases. During the transition towards net-zero, governments must prioritise retraining and upskilling workers in threatened sectors as to avoid substantial job losses.

If you would like to learn more about the Scottish Government’s roadmap to safely transition away from fossil fuels:

Scotland's Energy Strategy and Just Transition Plan: Ministerial statement

Statement by Cabinet Secretary for Net Zero, Energy and Transport Michael Matheson in the Scottish Parliament on Tuesday 10 January 2023.

www.gov.scot

Scotland's Energy Strategy and Just Transition Plan: Ministerial statement

Frictional Unemployment

Frictional unemployment refers to when people are transitioning between employment, or are students entering the workforce for the first time. When entering the workforce or between jobs, it typically takes time for individuals to find new employment opportunities and roles. This is a relatively constant level of unemployment in a typical economy. Frictional unemployment is calculated by dividing workers actively seeking a job by the total labour force.

Regional Unemployment

Regional unemployment is a form of structural unemployment. It occurs when structural unemployment affects localised areas of the economy.

The Choppy History of the River Clyde:

Throughout the early 20th century, Glasgow’s shipbuilding industry, along the River Clyde, was booming and accounted for a significant portion of employment opportunities. However, the 1960/70’s gave rise to a substantial decline in demand due to increased international competition, rising costs and changes in global shipping trends. Decreasing demand contributed to rising unemployment in the industry, particularly in Glasgow. This gave rise to the increase in regional unemployment in Glasgow. The rise in unemployment had damaging knock on effects in the city of Glasgow, due to the skills possessed by the shipbuilders being required less. Resultantly, there was the increased need for retraining, government support, and increasing the diversity of industries in Glasgow. If you want to learn more about Glasgow’s history of shipbuilding follow the link below:

Govan: A shipbuilding history

Scotland was once the shipbuilder to the world and the heart of its industry was sited on the south bank of the River Clyde in the Glasgow district of Govan.

www.bbc.co.uk

In the present day, the River Clyde is beginning to return as Glasgow’s leading centre of industry as it houses a variety of businesses such as financial services, digital media and tourism. Interested in the regeneration of Glasgow’s River Clyde? Read more about it here:

Clyde Waterfront regeneration: River Clyde urban renewal & development

Find details of Clyde Waterfront regeneration - urban renewal & development of River Clyde. New housing, office space & leisure attractions will transform waterfront.

www.clydewaterfront.com

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Did you know? In response to the decline of the traditional manufacturing sector which threatened further regional unemployment in Glasgow. AMIDS (Advanced Manufacturing Innovation District Scotland) has been developed near Glasgow with the aim of enhancing advanced manufacturing, research and development, and green practice. Advanced manufacturing refers to the use of cutting-edge technology and processes designed to modernise the manufacturing industry, and bring it in to the modern day.