Explain the different types of unemployment.

There are three main types of unemployment: real-wage (classical), demand-deficient (cyclical), and equilibrium unemployment (which includes seasonal, frictional, and structural unemployment). Real wage unemployment suggests that there is a surplus of labour and insufficient demand for labour, resulting in unemployment due to the oversupply. Such unemployment usually occurs when a minimum wage is implemented as there is insufficient demand for workers at a higher wage. Demand-deficient unemployment refers to the unemployment that occurs when Aggregate Demand of the entire economy falls, which slows down production and firms will not require as many workers. This unemployment an be solved by increasing AD, which will boost production. Equilibrium unemployment suggests that the labour market is in equilibrium but there are different reasons for the unemployment to occur. This includes seasonal unemployment, referring to people who have a steady job only in certain seasons like ski instructors who are unemployed during summer. Frictional unemployment refers to those who are either in between jobs or waiting to take their first job - meaning that they are in the workforce and actively searching for a job. Lastly, structural unemployment happens when there is a structural shift of the economy, which leads to displacement of workers due to permanent fall of demand for specific type of labour. Structural unemployment is usually solved through training programmes.

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