- What is Frictional Unemployment?
- Categories of Frictional Unemployment
- Frictional Unemployment Example
- Frictional Unemployment Versus Natural and Cyclical Unemployment
- What Causes Frictional Unemployment?
What is Frictional Unemployment?
Frictional unemployment is a form of unemployment that specifically arises in a healthy, thriving economy. Rather than being a consequence of economic issues like a recession, frictional unemployment is a standard form of labor turnover that doesn’t represent a real problem, so it shouldn’t be of much concern.
It is produced as a result of the time delays workers have in locating new job opportunities and getting hired; this is why it’s also referred to as “search unemployment” (the “search” refers to the time taken for the job search).
In most cases, frictional unemployment is voluntary—workers in this situation are deciding to be unemployed while searching for a job that fits their requirements, rather than simply accepting the first job that’s available to them.
Frictional Unemployment Definition
To define frictional unemployment more concisely: it is a form of unemployment that arises due to an economy’s employment transitions. It takes place in a healthy and stable economy with plenty of growth. Workers that create frictional unemployment include those who are changing their jobs and those who are first joining the workforce.
Categories of Frictional Unemployment
There are three main forms of workers experiencing this type of unemployment, as follows:
- Workers who left their previous job in order to pursue other opportunities
- Workers who are rejoining the workforce after a period of other activity
- Workers who are new to the job market (such as recent graduates)
Frictional Unemployment Example
One example of frictional unemployment is the unemployment experienced by new college graduates. They haven’t been out on the job market much yet and thus, although they may have all the skills needed to get hired for plenty of attractive jobs, they nevertheless take some time to locate their first jobs. That time period in which new college grads are job hunting is a form of frictional unemployment.
Compared to Natural Unemployment
Frictional unemployment represents one aspect of unemployment in general. It lies in contrast to natural unemployment, which is an economy’s minimum rate of unemployment produced by labor’s voluntary movement as well as economic forces. While natural unemployment focuses on the workers who are unemployed because they lack needed skills or their jobs have been made obsolete by new technological developments, frictional unemployment focuses on workers’ voluntary moves and job changes.
Frictional Unemployment Versus Natural and Cyclical Unemployment
Compared to Cyclical Unemployment
Cyclical unemployment is much more problematic than frictional unemployment. While cyclical unemployment is involuntary, frictional is voluntary. Furthermore, cyclical unemployment is heavily associated with economic recessions, when businesses let go of many employees in order to prevent profit margins from falling further. When unemployment increases during recessions, frictional unemployment will typically decrease, because workers who do have jobs will not feel confident choosing to leave them in search of other opportunities.
What Causes Frictional Unemployment?
This type of unemployment has a number of significant causes:
- Some workers quit their jobs because they believe they can find more lucrative employment elsewhere. They are unemployed while seeking jobs with higher pay.
- Alternatively, workers might leave their jobs in order to develop new skills or seek new education that will allow them to earn more money when they return to the workforce.
- Many workers must quit their jobs in order to address personal or family responsibilities, such as pregnancy and childcare, illness, or caring for a relative. They are considered to be contributing to frictional unemployment when they choose to re-enter the workforce.
- Unemployment benefits can contribute to prolonging frictional unemployment because workers are able to take more time looking for a better job without worrying about running out of money.
- Among those who are looking for their first real job, there can be a learning curve in the process of locating opportunities suited to their skill set. Rather than accepting the first job they can get, they wait for a job that has better pay and is more suited to their requirements, remaining unemployed until they find it.
- Moving from one city/town to another can create frictional unemployment if workers decide to move before they know where they’ll be working in their new home. They take time between quitting their old job to move and settle in somewhere new and are unemployed during that period.
Frictional Unemployment Isn’t Harmful
Even though we generally consider unemployment to be a bad thing, frictional unemployment is actually associated with a strong, healthy economy. Frictional unemployment is voluntary—workers aren’t unemployed in spite of a desire to work, but because they’re taking time to look for high-quality job opportunities.
It is typically a temporary situation, so does not place a significant strain on the social safety net. It can also be beneficial to firms that are in the process of hiring because it means that they have more options to select from among different applicants.