Frictional unemployment is a type of unemployment that occurs in an economy due to the natural process of workers moving from job to job. It is the time gap between when a worker leaves one job and starts another.
Frictional unemployment is a normal part of an economy and cannot be completely avoided but can be minimized. It naturally occurs when there is a lack of information or a mismatch of skills between job seekers and employers.
Examples of frictional unemployment include when college graduates search for their first job after graduation or people relocate to a new city looking for a job.
In contrast to other types of unemployment, frictional one is also known as “search unemployment” because it arises from the search process itself.
Frictional Unemployment Definition
Frictional unemployment is the situation in which a worker who is currently unemployed searches for but has yet to find employment. It occurs when the unemployed person is either looking for a job or waiting to start a new job (Goodwin et al., 2019).
The term “frictional” in this context refers to the friction that arises from the process of finding a new job. This friction can be caused by a lack of information, a mismatch of skills, or other factors that slow down the job search process.
Others consider frictional unemployment as one “that merely reflects people’s transitions between jobs”(Dullien et al., 2017, p. 351).
In simple words, frictional unemployment is short-term joblessness that occurs when people are temporarily between jobs. It arises from the normal turnover and search process in a healthy, dynamic labor market.
10 Examples of Frictional Unemployment
- College graduates looking for their first job: College graduates often spend a period searching for their first job after graduation. Besides, they often have to relocate and start their job search from scratch.
- People relocating to a new city or country: Moving to a new city, state, or even country can take time and cause friction in the job search process. People must adjust to a new environment and look for job opportunities that fit their skills.
- Professionals who are between jobs: Professionals who have a job switch to advance in their career may go through a period of frictional unemployment as they search for a new job.
- People transitioning to different industries: People who want to transition from one industry to another often experience frictional unemployment as they acquire the necessary skills and attempt to find a new job in the desired industry.
- People who are underemployed: Underemployment, which is the situation of working at a job that doesn’t take advantage of one’s skills, can be considered a form of frictional unemployment. Underemployed people often need to take some time off and search for a job that better meets their skills.
- Seasonal workers: Seasonal workers often experience frictional unemployment during the months when less work is available.
- Those who are re-entering the labor force: People who take a break from work, such as to raise children or care for a family member, often experience frictional unemployment as they look for a job.
- Self-employed: Many people who become freelance or start their own businesses also experience a period of frictional unemployment as they look for new clients and search for more business opportunities.
- People who want to find a better job: If an employee believes that they can find a better job and is willing to search for it, then this situation also falls under the category of frictional unemployment.
- Retirees: Finally, retirees who decide to re-enter the labor force also experience a period of frictional unemployment as they look for job opportunities (Schneider, 2022).
Frictional vs. Cyclical vs. Structural Unemployment
Unemployment can be divided into three types: frictional, cyclical, and structural. Each type has different causes and implications for the economy.
- Frictional unemployment is the temporary joblessness that occurs when workers are searching for better job opportunities. Such joblessness is normal in a healthy, dynamic labor market and usually lasts only for a short period of time (Goodwin et al., 2019).
- Cyclical unemployment happens when there is an overall decrease in the level of economic activity, such as during a recession. This type of unemployment is usually temporary, and the level of joblessness decreases as the economy recovers (Abraham & Katz, 1986).
- Structural unemployment is caused by technological changes or other factors that make certain jobs obsolete. This type of unemployment is more persistent and difficult to address, as it requires long-term economic and educational policies (Goodwin et al., 2019).
Main Causes of Frictional Unemployment
Generally, unemployment is a bad thing for any economy, as it creates a drag on economic growth and reduces potential output. But frictional unemployment is different since it is caused by normal labor market dynamics.
The main causes of frictional unemployment are:
1. Dissatisfaction with current job
Today, many people are unsatisfied with their current job and wish to search for better opportunities. Additionally, employees are now expecting more from their employers beyond mere satisfaction. As a result, such workers are more willing to look for new jobs to find better opportunities (Tucker, 2019).
2. Unemployment benefits
Unemployment benefits can be important in motivating individuals to search for new jobs. These benefits provide a certain financial safety net for workers, reducing their risk of financial distress and allowing them to search for new jobs without worrying about immediate financial needs.
3. The search for the perfect match between employer and employee
The labor market is an imperfect match between employers and employees, as it can take some time for the two sides to find the right fit. The process of finding a perfect match requires both job seekers and employers to search for each other, which leads to frictional unemployment (Tucker, 2019).
4. Job training and education
Many people experience frictional unemployment when they are in the process of gaining job-related skills or education. They may take a break from their current job in order to seek new skills or educational qualifications, leading to frictional unemployment.
5. Caregivers and retirees
Finally, people who need to take time off work to perform parental duties or care for a family member often experience frictional unemployment. Similarly, people who become freelance or start their own businesses also experience a period of frictional unemployment as they look for new clients and search for job opportunities.
Consequences of Frictional Unemployment
Frictional unemployment, just like any other kind of unemployment, brings with it a range of consequences both for employees, employers, and economics in general.
When frictional unemployment is widespread in the economy, here are some of the main consequences:
1. The job marketplace becomes fiercely competitive
When a large number of people are looking for jobs, it can lead to an influx of job seekers in the marketplace.
It leads to intense competition for available jobs, making it difficult for some employers to find suitable employees and leading to higher wage costs.
2. Loss of productivity
If people are unemployed, they lose out on valuable work experience and the opportunity to gain new skills (Reder, 1969).
In addition, it can lead to a decline in productivity and output, as employers cannot use the pool of available talents.
3. Employers can not always retain talents
When there is a large pool of available job seekers, employers may be unable to retain the most talented workers.
As a result, they lose out on opportunities to have the best people in their teams and businesses, leading to a decline in overall productivity.
4. Lack of spending
Unemployment leads to a lack of spending in the economy. With fewer people employed, there is less money circulating, which can lead to further job losses and a decline in economic activity.
5. Economic benefits in the short term
In the short term, frictional unemployment can positively affect the economy. It is because job seekers can look for better opportunities, and people can take time off to gain new skills.
All of this contributes to the economy’s growth, albeit in a limited capacity.
Still, in the long run, the effects of frictional unemployment can be damaging if it is not controlled (Reder, 1969). An economy with widespread unemployment will have a lower potential output, leading to slower growth and lower living standards.
Frictional unemployment is a natural and healthy part of the labor market, which is inevitable in a growing economy.
However, it means that job seekers may have to take some time off to search for the right job, and employers may need help finding suitable employees.
Examples of frictional unemployment include people who are in the process of gaining job-related skills or education, caregivers, and retirees.
This type of unemployment can have both positive and negative effects on the economy. In the short term, it can lead to growth and productivity gains, while in the long run, it can lead to a decline in economic activity and living standards.
For this reason, the government needs to manage frictional unemployment by creating policies encouraging employers to hire and helping job seekers find suitable employment. It can help keep the economy strong!
Abraham, K. G., & Katz, L. F. (1986). Cyclical unemployment: Sectoral shifts or aggregate disturbances? Journal of Political Economy, 94(3, Part 1), 507–522. https://doi.org/10.1086/261387
Dullien, S., Goodwin, N., Harris, J. M., Nelson, J. A., Roach, B., & Torras, M. (2017). Macroeconomics in context. Routledge.
Goodwin, N. R., Harris, J., & Nelson, J. (2019). Principles of economics in context. Routledge.
Reder, M. W. (1969). The theory of frictional unemployment. Economica, 36(141), 1. https://doi.org/10.2307/2556239
Schneider, G. E. (2022). Macroeconomic principles and problems. Routledge.
Tucker, I. B. (2019). Macroeconomics for today. Cengage.