There are 6 causes/types of unemployment you need to learn for your exam:

1. Frictional Unemployment
2. Seasonal Unemployment
3. Structural Unemployment
4. Technological Unemployment
5. Cyclical Unemployment / Demand-deficient Unemployment / Keynesian Unemployment
6. Real wage Unemployment / Classical Unemployment

1. Frictional Unemployment

This is temporary unemployment and it is the time period between jobs where the worker is searching for a job moving from one job to another.

2. Seasonal Unemployment

This is short-term unemployment and it occurs during the off-peak periods in an industry or economy.

3. Structural Unemployment

This is when job seekers do not hace the skills that firms want. Thus, this type of unemployment arises when the labour force is unable to provide jobs for everyone who wants to work because there is a mismatch between:

• The skills of the unemployed workers.
• The skills needed for the available jobs.

4. Technological Unemployment

This is when improvements in technology reduces the demand for labour.

New technology affects jobs in TWO ways, namely:

• New technology makes certain jobs redundant and increases unemployment.
• New technology creates new jobs that require different skills and the unemployed persons do not possess the skills.

5. Cyclical Unemployment/Demand-deficient Unemployment/Keynesian Unemployment

• When there is a recession or slump, cyclical unemployment is high due to low levels of aggregate demand.
• When there is a boom, cyclical unemployment is low due to high levels of aggregate demand.

The economy is often said to go from "Booms to Slumps".

• A Boom is a time when there is a high demand for goods and services, production is high and unemployment is falling. Two to three years after each boom, the economy may suffer from a slump or recession.

• In a Slump/Recession, demand for most goods and services falls, production falls and unemployment rises.

The pattern of booms and slumps are called the Trade Cycle.

Therefore, the type of unemployment caused by a general fall in demand for goods and services in a slump is called cyclical unemployment.

6. Real Wage Unemployment/Classical Unemployment

This occurs when wages are set above the market-clearing wage rate or equilibrium wage rate.

This can occur when the government sers minimum wages or a wage floor or when trade unions secure wages above the equilibrium.

This is shown in the following diagram:

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