Unemployment refers to a situation whereby a group of persons within a given population has no jobs, yet they have ability to perform in the labor force. Unemployment takes on different types of sources; frictional unemployment occurs as a result of employers and jobseekers taking time to learn and explore the job markets. Such type of unemployment usually lasts for a shorter period and results into an efficient match between the employers and the jobseekers.
Seasonal unemployment occurs when there is a demand of certain labor skills because of the seasonal changes that occur throughout the year. Structural unemployment occurs as a result of either a complete lack of labor skills demanded by the employers, or that the skills are not available where they are required (the unemployed do not live where the jobs are available).
It occurs due to change in taste, technology, taxes, and competition increase the demand for certain skills while also reducing the demand of other available skills. Cyclical unemployment occurs when there is a fluctuation with the business cycle (fluctuations in production and or economic activity). It increases during the contractions (recessions) while reducing during the expansions.
Recession refers to a decrease and general slowdown in economic activity causing a rise in the rate of unemployment. It is a negative growth in the national gross domestic product (GDP) and gross national product (GNP). According to Nagle (2009), “it is when the value of what a country has to offer to its citizen and those of other nations has decreased within a specified period of time.”
Recession results into a slowdown of the economic growth, and as the economy drastically reduces, separations start rising and the job-finding rates begin to fall. This trend results into an increase in the rate of unemployment. During recession, companies and other sectors of employment optimize on cost and resources by reducing the rate of expenditure and reducing unnecessary work force, which in turn increases the rate of unemployment.
National unemployment has numerous causes; first, lack of required skills in the job market such that individuals lacking the basic skills that employers demand will end up being unemployed. Disparities along tribal and racial lines sideline a group of individuals from being employed. Other factors include poor policies regarding employment of individuals, tastes, and preferences by individuals, that is, those preferring white-collar jobs to other manual jobs.
Moreover, marginalization of other regions results into underdevelopment of employment opportunities. Another cause of unemployment is government wage controls where minimum wage legislation by the government contributes to a mismatch between demand and supply in the labor market, accentuating the unemployment of unskilled and handicapped labor (Lindbeck, 1993).
Recession comes as result of decline in the gross domestic product. It is caused by inflation (a rise in the prices of goods and services within a period of time). In this case, people will tend to cut down the rate of expenditure to save more. Inflation is caused by an increase in the cost of production of various goods and services, bad weather leading to poor crop production, stock market crashes, globalization, wars and political instability, higher energy costs, and the national debt (credit crunch) because of bad investment.
An example is the case of U.S. when there was an increased investment in housing which led to recession in 2008. The cutting and streamlining of expenditure by individuals and the business enterprises causes the gross domestic product to decline (McEachern, 2008).
Inflation is the major cause of recession. Companies will cut down the overall costs by reducing the work force required to perform certain tasks. As a result, more people will face the axe from their employment positions. This results into a number of individuals being unemployed during the period of recession.
The following chart shows the changes in unemployment because of recession over the years, courtesy of U.S economy forecast 2008 (Mauldin, 2008).