Types of unemployment in an economy

Types of unemployment in an economy

Unemployment is defined as the number of people who are will to work at the prevailing market wage rate but are unable to get jobs. The three typical types of unemployment in any economy are; frictional, structural and cyclical.

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Frictional unemployment

This is the most common type of unemployment. It results from temporary transitions made by employees and employers or employees or employers have incomplete and inconsistent information. This kind of employment depends on the dynamics of the economy. It mainly results from unemployed workers who do not take up their first job offers because the wages offered and the requisite skills required. It also arises from poor job performance, collapsing firms and possession of obsolete skills.

Structural unemployment

This is the type of unemployment associated a mismatch of jobs and workers due to the deficiency of appropriate skills demanded by the employers. It depends on the dynamics of the economy coupled with its social needs. For instance, when technological advances happen in the market, it may turn many skills obsolete something which in effect increases the rate of unemployment. In order to get new job offers in their previous areas, the laid off workers need to acquire new skills.

Cyclical unemployment

This is the type of unemployment that results from economic contraction whereby the economy has the capacity to create only jobs that increase its growth. It type of unemployment is usually associated with business cycles. During recessions, the level of cyclical unemployment is high unlike times of economic boom.

Types of unemployment in the US

The above-mentioned types of unemployment are present in the United States. The cyclical type of unemployment is the most common followed by structural and lastly frictional unemployment.

Government measures to achieve full employment.

Full employment is a state employment levels where cyclical unemployment has been eliminated. For any government to achieve full employment it can pursue any of these policies (Gangl, 2003). First, it can instruct its Federal Reserve to target a full employment with a wage matching productivity. Second, the government can initiate targeted employment programs to benefit a majority of their unemployed people. Third, it may start public investments and infrastructure which have the potential of creating jobs and create growth. Lastly, the government may cut taxes and raise interest rates in a bid to make businesses more profitable so as to increase their employment rates.

Price Level Analysis

Inflation Trend in the US

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Inflation is the persistent increase in general prices of goods and services in an economy. The inflation of US economy has hit a 2- year high mark of 1.6% this year 2016. This happens to be the highest since 2014. This rise in inflation is consistent with US macroeconomic expectations due to increasing pump prices and a high cost of housing coupled with decreasing food prices. Inflation was highest in 2008 during the financial crisis were it above 5% points. During this time the cost of credit was very high which pushed prices upwards. After the crisis, rates were lowered to zero so as to rescue the economy. This accounted for the zero inflation in the year 2009 (“United States Inflation Rate”, 2016). In 2010 inflation increased this after Bush tax cuts ended.

Typical causes of inflation

The main causes of inflation are either excess aggregate demand or cost-push factors; and the two types of inflation are namely demand pull inflation and cost push inflation.

Demand-pull inflation

When the economy is close or at full employment, an increase in aggregate demand leads to an increase in inflation.


Cost-push inflation

When there is an increase in production costs of the firm, then it passes such an increase to the customers in form of higher prices. Cost push inflation is caused by several factors like rising wages, highly priced imports and raw materials, higher taxes and declining productivity of firms.

Causes of inflation in the US

One of the main causes of inflation in the US is whereby wage prices increases more than the cost of living leading to wage inflation. Trade unions have a higher bargaining power a fact that has lead to increasing wages recently. Another cause of inflation in the US is the asset bubble or asset inflation which occurs in a single class of asset like housing or oil when overlooked which has a negative effect on the economy. A good example is subprime mortgage bubble and the follow global financial crisis. The third main cause of inflation in the US is increasing food prices coupled with the high importation of horticultural products. A money supply that surpasses the rate of economic growth is another major cause of inflation. Lastly, high national debt in the US is another cause of inflation, this is because repayment will call the government to increase taxes or print more money. Increased taxes will force businesses to raise prices so as to offset the effect of higher corporate taxes while printing more money will increase money supply leading to devaluation of currency and increased prices.

Government measures to achieve stable price in the US

The US government uses the Federal Reserve Bank in its bid to ensure price stability in the economy. Price stability happens to be the ultimate goal of any Central Bank worldwide which is achieved through the measures it takes to reduce inflation. The Federal Reserve Bank does reduce inflation by reducing the amount of money supply. Alternatively, it can raise interest rates to offset the rate at which prices of goods and services are rising.


The economy of the United States is the backbone of the global economy. Its currency the US dollar is used to settle most of the international transactions. Any negative effect arising from the world’s largest economy affects a sizeable number of other world economies. If the US economy experiences a financial crisis, it spreads to the rest of the world just like the 2008 global financial crisis. For the economy to stay afloat it has to do business with the rest of the world while ensuring that it enjoys a favorable balance of payment. It has been formulating policies to counter the increasing amount of Chinese exports which have been a threat to the US manufacturing sector.

US economy has been in the forefront in checking all its aspects of the economy including production, employment, and price stability. It macroeconomic indicators have been rated as the world’s best. It has managed to keep inflation low, relatively stable prices and reduced level of unemployment.

For the US economy to stay robust it should embrace policies that promote international trade and enhances financial prudence (Stansberry & Paul, 2016). It should also ensure that its exports are globally competitive in order to reign over others in the international market a move that will eventually reduce the balance of payment deficit.















America 2020: The Survival Blueprint: Porter Stansberry, Ron Paul: 9780990947233: Amazon.com: Books. (2016). Amazon.com. Retrieved 24 November 2016, from Amazon.com: Books”, 2016)

Feldstein, M. S., & National Bureau of Economic Research. (1988). The United States in the world economy. Chicago: University of Chicago Press.

Gangl, M. (2003). Unemployment Dynamics in the United States and West Germany: Economic Restructuring, Institutions and Labor Market Processes. Heidelberg: Physica-Verlag H

United States Inflation Rate | 1914-2016 | Data | Chart | Calendar. (2016). Tradingeconomics.com. Retrieved 26 November 2016, from http://www.tradingeconomics.com/united-states/inflation-cpi

United States Unemployment Rate | 1948-2016 | Data | Chart | Calendar. (2016)Tradingeconomics.com. Retrieved 25 November 2016, from http://www.tradingeconomics.com/united-states/unemploy

United States. (2010). the world factbook 2010. Washington, D.C: Potomac

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