Type # 1. Frictional Unemployment:
It occurs when changing demand patterns in an economy dislocate existing production patterns to the extent that labour becomes redundent.
Due to change in demand for goods and services, specialized workers cannot easily move to new work. Similarly, due to changes in the technique of production the skill of certain workers may be made obsolete. As a result there is unemployment in an industry (in which demand has declined) and shortage of labour in another industry (in which demand has increased).
Thus frictional unemployment arises due to economic fictions arising from changes in employers’ demands for different types of labour. In other words, this type of unemployment results from the time lags involved in the reemployment of labour.
It takes, in practice, time for the unemployed to find vacancies, be interviewed and taken on. This type of unemployment arises due to the fact that the adjustment in the labour market is far from complete, at least in the short run.
Type # 2. Structural Unemployment:
This type of unemployment arises through a change in demand which switches production from one kind of work to another, it differs from frictional unemployment in that it occurs through permanent or long-term changes in the structure of the economy. In other words, structural unemployment is long-term unemployment caused by the decline of certain industries and changes in production process.
When a fall in demand for the products of certain industries is offset by a compensating increase in demand for labour in other industries, there is the problem of frictional unemployment, but when there is no such neutralizing effect, the unemployment is of the structural type, both have the same basic cause, viz., the immobility of labour.
Type # 3. Cyclical Unemployment:
This type of unemployment arises from the business cycle. Keynes was mainly concerned with this type of unemployment. Such unemployment occurs due to deficiency of demand or purchasing power and is also called demand-deficient unemployment.
Since this type of unemployment is caused by a general deficiency of demand, it affects all industries at the same time. Since this type of unemployment is due to downturn in economic activity, it can, therefore, be expected to occur and disappear at fairly regular intervals.
Type # 4. Seasonal Unemployment:
This type of unemployment occurs due to seasonal pattern of demand and the consequent seasonal nature of activities in some industries. In some industries like entertainment, tourism and soft drink, the demand for goods and services fluctuates seasonally. As a result these industries are fully staffed in the peak season but many workers are laid off in the off-season.
A similar problem occurs in some outdoor occupations when bad weather stops production. Examples of these occupations are building construction and deep-sea fishing, unemployment in the countries’ industry increases during the rainy season.
This problem is observed in Indian agriculture. Since agriculture is a seasonal occupation, it cannot offer full-time jobs to all workers throughout the year. The problem is really serious in those areas where only one crop is grown per year.
This problem can be solved at least partly by introducing multiple-cropping practices and through better crop-rotation. However, this problem cannot be fully solved due to the absence of alternative employment opportunities outside agriculture.
Type # 5. Disguised Unemployment:
The concept of disguised unemployment (D.U., in short) was introduced by Mrs. Joan Robinson in 1934. It is a type of unemployment which prevails in LDCs like India, due to population growth, shortage of land and the existence of certain social institutions like the joint family system.
All the members of the peasant family work on the same family arm. The newcomer, whether he is a distant relation or a new -born child, will ultimately start working on the same farm with other members of the family.
This makes it possible for many persons to work on the same family farm without any consideration of whether any extra output is really being produced from additional employment or not. They may not add anything to total output. The employment may be superfluous. This means, even if they were to be removed, the total production will not be affected.
In technical terms we may say that the marginal output (the addition made by the additional worker) is zero or even negative in some cases. This implies that a certain portion of the so-called employed workers in a subsistence sector—like agriculture—can be withdrawn without causing any fall in total product.
An illustration will make the point clear.
Suppose, a family has 20 acres of land. According to the method used in cultivation, we further presume that 4 workers are sufficient to look after all the operations of the farm, if the family has 6 working members, and if all of them are engaged on this farm, we can say that 2 of them are surplus. The total output will thus remain unchanged even if two workers are taken away, it may, however, be difficult, in practice, to pick out these two workers.
Therefore, all people may be occupied and no one may consider himself idle; while the fact remains that a certain number of labourers on land could be dispensed with, without reducing the total output. Apparently, these workers normally seem to be employed, because they are contributing nothing to the total output. This type of unemployment is also sometimes called ‘Concealed unemployment’ or surplus manpower.
Disguised unemployment exists primarily in two forms, i.e.:
(a) Employment of people in less productive works than they are capable of, or, in other words, an under-utilisation of skill processed by the people;
(b) Employment of people in a number larger than that required for doing the job.
Mrs. Joan Robinson uses the term ‘Disguised Unemployment’ to describe a situation in which the wage workers take to less productive jobs because they lose their regular job owing to cyclical trends in economic activity. The nature of the disguised unemployment, however, is very different in under-developed countries.
First, it is chronic and not cyclical. Secondly, it relates more to self-employed workers than to wage-earners. And, thirdly, it is caused by a shortage of complementary resources, and not by any deficiency of effective demand. It is due to this fact that some economists prefer to use the term ‘under-employment’ and not ‘distinguished unemployment’.
The proximate cause of disguised unemployment in underdeveloped countries is that the capital and skill resources of these countries have not developed along with the growth of population. Population is increasing at a tremendous rate. Employment opportunities outside agriculture increase very slowly. The result is a growth in the number of people employed in agriculture. The additional labour force in agriculture adds little to the total output.
Techniques, amount of capital and other complementary factors and the organization all remaining unchanged, a part of the working force can be removed without being followed by a decrease in total output, in other words, this means that with minor changes in the organization, techniques and the amount of capital, it is possible to remove a considerable portion of the working force without affecting production.
Establishment of optimum sized holdings, for instance, will render a considerable portion of the agricultural working force as surplus. The surplus man-power in agriculture is a great hindrance in increasing productivity in agriculture. Increases the subdivision and fragmentation of land-holdings, which is an important cause of law productivity in agriculture in under-developed countries.
The root cause of unemployment seems to be immobility of labour. So the problem can be solved by increasing labour mobility and (job) search activities (so that more information is available). However, the real solution lies in adopting demand-management policies, viz., monetary and fiscal policies.