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Economic Theory

In this case, the number of unemployed workers exceeds the number
of job vacancies, so that if even all open jobs were filled, some workers
would remain unemployed. This kind of unemployment coincides with
unused industrial capacity (unemployed capital goods).

Frictional unemployment is a situation when a worker is unemployed
because he lacks the required skills or placed in wrong jobs. This type of

unemployment is caused by immobility of labour, seasonal nature of work,
short-term scarcity of raw materials, collapse of machinery etc. In other
words, it involves people being temporarily between jobs, searching for
new ones; it is compatible with full employment.

This type of unemployment coincides with an equal number of
vacancies and cannot be solved using aggregate demand stimulation. The
best way to lower this kind of unemployment is to provide more and better

information to job-seekers and employers. In theory, an economy could
also be shifted away from emphasizing jobs that have high turnover,
perhaps by using tax incentives or worker-training programs. But some
frictional unemployment is beneficial, since it allows workers to get the

jobs that fit their wants and skills best and the employers to find
employees who promote profit goals the most.
Structural unemployment is said to exist when large number of

persons are unemployed because the co-operant factors of production
which engage them fully are not sufficiently available. There may be
scarcity of land, capital, in the economy causing structural unemployment.
In other words, it involves a mismatch between the workers looking for

jobs and the vacancies available. Even though the number of vacancies
may be equal to the number of the unemployed, the unemployed workers

lack the skills needed for the jobs – or are in the wrong part of the country
or world to take the jobs offered. That is, it is very expensive to unite the
workers with jobs.
Structural unemployment is hard to separate empirically from

frictional unemployment, except to say that it lasts longer. It is also more
painful. As with frictional unemployment, simple demandside stimulus
will not work to easily abolish this type of unemployment. Some sort of

direct attack on the problems of the labor market – such as training
programs, mobility subsidies, or antidiscrimination policies are better
solutions. These policies may be reinforced by the maintenance of high
aggregate demand, so that the two types of policy are complementary.

According to classical economists, full employment is a situation
when there is no involuntary unemployment, though there may be other

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