Understanding Market Conditions: Different Kinds of Unemployment

by Sean Ross

2 min read

According to the Canadian government, there are three types of working-age adults who qualify as officially unemployed:

  1. Those who are on temporary layoff but have an expectation of recall and are available for work;
  2. Those who are without work, are available for work, and who looked for work in the prior four weeks;
  3. Those who expect to start a new job within four weeks of the survey date.

Beyond the official government definition, there are four kinds of unemployment commonly identified by professional economists and statisticians: cyclical, seasonal, frictional, and structural.

Cyclical Unemployment

Local and national (or even sometimes international) economies sometimes fluctuate between periods of high growth and painful realignments. When the economy needs to reallocate resources from current orders of production and into new ones, workers often lose their jobs. This is because old businesses and investments must sometimes fail to free up resources for new, more sustainable enterprises. They are many competing explanations for why economic cycles take place, but one of the crucial characteristics of cyclical downturns is an increase in the unemployment rate. As long as your business survives the downturn, one of the benefits of cyclical downturns is that they sometimes make labour less expensive, since more people must compete for fewer jobs.

Seasonal Unemployment

Consumers tend to demand different goods and services at different times of year. For example, ice cream sales tend to drop during the coldest months, while sales for winter boots tend to go up. Similarly, few people wish to purchase Christmas trees in July or Valentine’s Day cards in October. For companies in seasonally sensitive occupations, it may make sense to lay off a portion of the workforce during off-season months.

Frictional Unemployment

Frictional unemployment is a catch-all category for any workers who, for one reason or another, decide to change jobs and have some time off in between. This could include a worker moving between careers, a member of a family moving to a new city, or someone who quits because they no longer like where they work. It is difficult to anticipate how frictional unemployment affects your business – unless, of course, your employees frequently leave because they are unhappy. These cases tend to be highly circumstantial.

Structural Unemployment

Structural unemployment occurs whenever the labour market reacts to fundamental changes. For example, the government may decide to raise the minimum wage and, as a result, many low-skilled workers find themselves unable to convince employers they are an economic benefit. A new technological advance (such as the invention of the automobile) could throw an entire industry out of work (in this case, the horse-and-buggy industry). It may be to your benefit to identify the underlying causes of structural unemployment, whether regulatory or organic, to see if your enterprise can either protect existing workers or strategically reach out to disaffected unemployed persons as a source of new labour or new customers.

How the Canadian Government Measures Unemployment

Statistics Canada releases two monthly sets of unemployment estimates, each based on a sample of working-age Canadians: the Labour Force Survey of households and the Survey of Employment, Payrolls and Hours, which is conducted on a business-by-business basis. (The Territories, Indian Reserves, institutionalized residents, and members of the armed forces are not covered in such surveys.)

References & Resources

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