Question

State whether the following example is frictional, structural or cyclical unemployed.

a. Zahra lost her job because the economy slows down.

b. Salman, a farmer who lost his job because of the introduction of new irrigation system.

c. Hala quit her work and start looking for better one with better payment.

d. Deema lostt her job in ABC supermarket because a decline in sales over the last quarter.

Answer 1

First we need to know what is cyclical, frictional and structural unemployment.

Cyclical unemployment occurs when the economy experiences the business cycles. For example when the economy goes into recession many jobs are lost due to the fall in output. This is termed as cyclical unemployment.

Frictional unemployment occurs when workers search for new job opportunities or someone is shifting from his/her old employement to a find a better employement opportunity. It is a voluntary unemployment.

Structural unemployement occurs when there is a skill gap in the workers. It means that there is a mismatch between the skills of the workers and the skills that are required by the employers.

Now, let us see in which category each of the above given situations fit.

(a) It is an example of CYCLICAL UNEMPLOYMENT. Zahra lost her job because of the slow down in the economy. Due to the slow down, there are lay-offs as ouput reduces in the economy.

(b) It is an example of STRUCTURAL UNEMPLOYMENT. Salman who is farmer lost his job when a new irrigation system was introduced as he does not have the knowledge of this new irrigation system which created a skill gap.

(c) It is an example of FRICTIONAL UNEMPLOYMENT. Since Hala has quit her job to start looking for a better paid job, she is now frictionally unemployed. She is looking for better job opportunities. She has quit her job voluntarily.

(d) It is an example of CYCLICAL UNEMPLOYMENT. Deema has lost her job as there was a decline in the sales last quater which is a result of economic cycles. As the sales declined, the demand decreased and ABC supermarket had to lay-off as it could not afford to pay all the employees.