What is the relationship of frictional structural and cyclical unemployment to full-employment rate of unemployment or natural rate of unemloyment?

Answer 1

Economists recognize three major types of unemployment:

• frictional - the unemployment experienced between changing jobs or in the midst of training between jobs. It is also called search unemployment.
  
• structural - the unemployment due to the mismatch between the skills of the unemployed workers and the vacancies available (i.e., if one lacks the skills to get the job or if one doesn't want the job and chooses to stay unemployed because one is overqualified).
  
• cyclical - the unemployment due to variations in the business cycle. When the economy is rising, it decreases and when the economy declines, it increases due to inadequate effective aggregate demand.

Full employment is the theoretical rate of unemployment that can be achieved if cyclical employment is eliminated (by increasing demand for products and workers). However, eventually the economy hits an inflation barrier - when decreasing unemployment further causes disproportionate increase in inflation (see Phillips curve).

The natural rate of unemployment is the rate that exists when the labour market is in equilibrium and there is no pressure for nether increasing or decreasing rate of inflation.

Basically, frictional and structural unemployment are always present and relatively constant while cyclical unemployment varies with the business cycle.