Expert reviewed • 22 November 2024 • 6 minute read
Cyclical unemployment is directly related to the business cycle. It occurs during periods of economic downturns when demand for goods and services decreases, leading to reduced production and layoffs. For example, during the COVID-19 pandemic in 2020, Australia's cyclical unemployment spiked the overall unemployment rate to 7.4%, as businesses closed and economic activity slowed.
Structural unemployment results from a mismatch between the skills workers possess and the skills employers need, often due to technological changes or shifts in the economy. For example, the decline of Australia's automotive manufacturing industry led to structural unemployment. When Toyota closed its manufacturing plant in Victoria in 2017, it resulted in the loss of 2,600 jobs.
Frictional unemployment is short-term unemployment that occurs as people move between jobs or enter the workforce for the first time. This usually includes recent graduates looking for their first job or workers voluntarily changing jobs. As of 2021, in Australia, the average time to find employment for those unemployed but actively looking is about 17 weeks, representing a period of frictional unemployment.
Seasonal unemployment occurs when people are unemployed at certain times of the year because their jobs are dependent on the season. For example, agricultural workers in Australia may face unemployment outside of the harvesting season, and retail workers might experience higher unemployment after the holiday seasons (i.e., Christmas).
Underemployment occurs when individuals are working part-time or in jobs that do not fully utilise their skills and education. They are defined as employed people who are in the situation of not working as many hours as they would like or are working in jobs that don't fully utilise their skills. For example, in Australia, many university graduates might work in part-time retail jobs that do not require a degree, reflecting underemployment. Additionally, underemployment and unemployment rates can be completely different at any point in time, as they are not directly correlated. For example, as of April 2023, Australia's underemployment rate was 6.2%, compared to the unemployment rate of 3.7%.
Hidden unemployment includes people who are not counted in official unemployment statistics but are not fully employed. This includes:
Long-term unemployment refers to people who have been unemployed for an extended period, typically 52 weeks or more. This type of unemployment can lead to skill erosion and decreased employability, making individuals more susceptible to structural changes in the economy. As of April 2023, 20.1% of unemployed Australians were classified as long-term unemployed.