What Is
Frictional Unemployment: Examples, Causes, Rates
Definition: Frictional unemployment is
when workers leave their jobs to find better ones. It's usually thought of as a
voluntary exit, but can also occur as a result of a layoff or termination with
cause. The time, effort, and expense it takes to find these new jobs is known
as friction. It occurs because workers need to learn about possible new
employment opportunities, go on interviews, and possibly move before starting
their new jobs.
It's
an unavoidable part of the job search process. However, the good news is that
it's usually short-term.
Causes
Why does
frictional employment exist? It's more logical for workers to hold onto their
existing jobs until they find new ones. Often, workers must move for unrelated
reasons before they can start searching for new jobs. They might have gotten
married or have to care for elderly relatives. Other times, they might have
saved enough money so they can quit unfulfilling jobs, and have the luxury to
search until they find just the right opportunities.
During a recession, frictional unemployment drops. Why?
Workers are afraid to quit their jobs, even if they don't like them. They know
it will be difficult to find better ones. But cyclical unemployment more than offsets the decline in
frictional unemployment. That's because businesses lay off employees whether
they like their jobs or not.
Effects
Frictional
unemployment is not as harmful to an economy as the other types of unemployment, such as cyclical and structural unemployment. That's because a rise
in frictional unemployment is simply an increase of workers moving toward
better positions. Even if employees leave due to firings or company-specific
layoffs, it means they were out of sync with their positions or managers, or
that they are leaving uncompetitive companies or industries.
In
any case, they will win positions that are better for them as a result.
Frictional
unemployment benefits the economy. It allows companies the opportunity to find
qualified workers. If there were no unemployment, if everyone stayed in their
jobs until they found a new one, it would be more difficult, time-consuming and
expensive for companies to bring on good workers. Labor costswould rise, creating cost-push inflation. On the other hand,
workers' pay would increase, reducing U.S. income inequality.
Examples
A good
illustration of frictional unemployment is when students graduate from high
school, college or any higher degree. A second example is mothers who are
entering or rejoining the workforce after their children are old enough. A
third example is a construction worker moving to Arizona in the winter. They
aren't counted in the frictional unemployment figures until they start actively
searching for work. In all of these examples, they are improving their
financial situations.
Frictional
Unemployment Rate
The frictional unemployment rate measures the workers who are actively
looking for jobs and are only unemployed because they haven't yet found their
new positions.
Divide
this number by the total number of the labor force to
get the rate. TheBureau of Labor Statistics can give you some clues to approximate
the frictional unemployment rate in the monthly Employment Report. Go to the "Employment
Situation Summary Table A. Household data, seasonally adjusted." It
supplies three numbers, under "Reasons for Unemployment," that will give
you a good estimate of those that are frictionally unemployed:
- Job leavers (those that voluntarily
quit their jobs),
- Reentrants,
- New entrants.
Add these
together, and divide by the total number of unemployed to get a good
approximation of the frictional unemployment rate. (Source: "Sources of Secular Increases in the Unemployment Rate," Monthly
Labor Review.)
Solution
Frictional
unemployment can be reduced by bringing better information about jobs to the
worker. That was accomplished by job matching services on the Internet, such as
Simply Hired, Monster ,and CareerBuilder. Nevertheless, it still takes
time to write a compelling resume, search for the right job, apply, wait for a
response and go through the interview process. Furthermore, many job seekers
still find the best source of new jobs is through their professional network.
Even this has been helped by online services such as Facebook, Twitter, and
LinkedIn.
Frictional
unemployment cannot be reduced through expansionary monetary policy, like other types
of unemployment can be. In fact, it might even increase it. That's because, in
a booming economy, jobs are in a higher supply. Often employers have a hard time find
qualified candidates. In the expansion phase of thebusiness cycle, workers feel more confident to
quit their job in search of a better one. That increases frictional
unemployment.
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