Unemployment is a situation where persons aged 16 years and above, who are ready, willing and able to undertake jobs and are actively searching for jobs are not working at any specified time. It is inversely proportional to the economic growth. However, it is undesirable as it increases loss of income and lowers individual output thereby enhancing distribution inadequacy.
Transitional unemployment
This occurs due to temporary changes in the economy. For example, it can be caused by leaving a job for with expectation of getting another job; casual/contract employment and seasonal jobs. During this short span, a person remains unemployed but he is willing to be employed. It can be caused by: long period of job search time, sectoral shift which increases dislocations; poor implementation of employment policies. Under normal circumstances, this type of unemployment may not be avoidable.
Structural or mismatch unemployment
It is caused by long-term variations in the patterns of demand and production within any given economy. Such variations causes’ mismatch between workers qualifications and job requirements thereby more training need for relevant skills. Mismatch can arise due to: skills (inflexibility of relative wages, lack of job training and discrimination); location specific and policy related constraints. There is need on the workers to adapt changes thus making them job relevant all the time.
Classical unemployment
This occurs if the real wage rate is higher than what local companies can afford to pay and maintain using that rate. It result in more layoffs by prospective employers. However, to control such unemployment, there is need to correctly specify policies controlling the rate from increasing exorbitantly. Specifically, first, policies should be directed at trade unions not to overemphasize on the wages, and second, income-related policies should also be relaxed to lower wages of senior management and as such, increase employment in the economy.