The Types & Consequences of Unemployment

Exam code: 2281

Written by: Ashika|Reviewed by: Caroline Carroll|Updated 2 July 2026

There are specific causes of unemployment
Understanding the cause is helpful as each cause may require different solutions to be implemented

Type	Explanation
Seasonal	Seasonal unemployment occurs as certain seasons come to an end and labour is not required until the next season E.g., fruit pickers, summer seaside resort workers, ski instructors
Frictional	Frictional unemployment occurs when workers are between jobs This is usually short-term unemployment Workers have voluntarily left their previous job to search for another
Structural	Structural unemployment occurs when there is a mismatch between jobs and skills in the economy It usually happens as the structure of an economy changes, e.g. the secondary sector is declining and the tertiary sector is growing There is no longer a need for a specific type of worker, e.g., shipbuilders in Glasgow Many Western industries have relocated production to China, causing structural unemployment in their economies Unless workers receive help to retrain, they are often left unemployed or underemployed
Cyclical	Cyclical or demand-deficient unemployment is caused by a fall in total demand in an economy This typically happens during a slowdown or recession The demand for labour is a derived demand, as it stems from the demand for goods/services As output falls in the economy, firms lay off workers

Unemployment can have serious impacts on individuals, producers/firms, the government, and the wider economy
- The effects are often connected
  - For example, a loss of income for individuals reduces spending, which lowers firms’ sales, leading to lower tax revenue for the government
The effects of unemployment, especially long-term unemployment, are extremely damaging

Loss of income
- Unemployed people cannot earn wages, reducing their ability to buy goods and services
Sense of failure
- Being without work can harm self-esteem and confidence
Health issues
- Physical and mental health can suffer due to financial pressure and inactivity
Mental instability
- Anxiety and depression can increase during long periods of unemployment
Marital breakdown
- Financial stress can lead to relationship problems
Stress and suicide
- Extreme cases of unemployment-related stress may lead to suicide

Loss of sales revenue
- Unemployed consumers spend less, reducing firms’ income
Loss of output
- Fewer workers mean lower production levels
Lower skill levels
- If unemployment lasts a long time, workers lose skills, reducing the quality of the labour force

Increased spending on benefits
- More people claiming unemployment or welfare payments
Lower tax revenue
- Less income tax, corporation tax and sales tax is collected
Increased spending on retraining
- Governments may need to fund programmes to help people back into work

Increased crime and vandalism
- Unemployment can lead to higher crime rates due to financial desperation or social unrest
Increased anti-social behaviour
- Frustration and exclusion from the labour market can cause social problems
Increased homelessness
- Without income, some people may lose their homes

Types of unemployment