• Cyclical unemployment is involuntary unemployment created by business-cycle recessions. Workers do not have jobs because aggregate demand and production in the economy are down.


• Seasonal unemployment is relatively regular (read this as predictable) unemployment tied to a particular job. It is termed seasonal because it often occurs during particular seasons of the year.


• Frictional unemployment is temporary unemployment created when workers switch jobs. The key with frictional unemployment is that the number of workers is equal to the number of jobs, it just takes time and information to match them up.


• Structural unemployment is relatively permanent unemployment created because the skills of the workers are not the same as the skills needed on the job. Again, an equality between the number of workers and jobs exists, there is just a mismatch of skills.

Cyclical Unemployment

The reduction or elimination of cyclical unemployment has been one of the primary goals of macroeconomic policy (especially fiscal policy, but also monetary policy) since the Great Depression of the 1930s. Cyclical unemployment can be eliminated (or at least reduced) by avoiding business-cycle contractions through the timely application of expansionary fiscal or monetary policy.

Seasonal Unemployment

Because seasonal unemployment is relatively regular and predictable, it is generally considered part of the "conditions of employment," and is largely ignored in the study of the macroeconomy.

Frictional Unemployment

A carpenter is frictionally unemployed even though a construction company has a job for a carpenter because neither knows about the other. Or perhaps the carpenter lives in North Dakota and the construction company is in North Carolina. In either case, the carpenter remains frictionally unemployed until matching up with the job, which just takes time. Frictional unemployment can be reduced by improving the information available to workers and employers. This reduces the amount of search time required to match workers with existing jobs.

Structural Unemployment

Structural unemployment is a key side effect of a growing, prosperous economy driven by technological advances. Workers find that their skills become technologically obsolete. The jobs workers know how to do no longer exist. Structural unemployment can be reduced through education and training. The only way to totally eliminate structural unemployment is to eliminate technological change, and all of the benefits that this entails.

Natural Unemployment

A few observations about natural unemployment are:

• One, natural unemployment is considered the combination of frictional and structural unemployment. Although they can be reduced, the economy is always likely to have some degree of frictional and structural unemployment.

• Two, frictional and structural unemployment do not result from the lack of available jobs, only from the problems of matching workers and jobs. In other words, the quantity demanded equals the quantity supplied. For this reason, natural unemployment is considered synonymous with full employment.

• Three, because the demand and supply quantities are equal, there is no pressure on factor prices (wages) to change. Natural unemployment can be sustained with no changes in inflation. The same cannot be said about cyclical unemployment.

• Four, because natural unemployment can be sustained without affecting inflation, it provides an excellent target for macroeconomic stabilization policies. Policies that achieve and maintain ONLY natural unemployment essentially eliminate ALL business-cycle instability.