What is Frictional Unemployment?

Frictional unemployment refers to the type of short-term unemployment that arises when individuals are in the process of searching for new job opportunities or transitioning from one job to another. In the labor market dynamics, this is a natural and unavoidable aspect that stems from multiple factors, including changes in personal circumstances, job dissatisfaction, or the pursuit of better career opportunities.

Furthermore, it is a normal part of unemployment that persists even when the economy is doing well, and everyone who wants a job has one. In contrast to other forms of unemployment, frictional employment differs in its response to economic recession. It often tends to decrease in such situations because workers, recognizing the scarcity of job opportunities during a recession, become more hesitant about changing jobs.

In essence, the uncertainty in the economy encourages individuals to remain in their current jobs, resulting in a decrease in the occurrence of frictional unemployment. In simple words, frictional unemployment is temporary unemployment that happens when people are in between jobs or looking for new employment. It is a normal part of unemployment found in a healthy and stable economy.

How To Determine Frictional Unemployment Rate?

If you wish to find out the frictional unemployment rate, you can use a specific calculation method. To determine the frictional unemployment rate, you can divide the number of people actively seeking jobs by the total labor force. Those actively searching for employment mainly fall into three categories: individuals who recently left their jobs, those re-entering the workforce, and new job seekers.

Combining all of these categories provides us with an overall count of frictionally unemployed individuals. The formula is described below:

Frictional Unemployment Rate = (Number of frictionally unemployed / Number of labor in force) x 100

The labor comprises individuals who are either employed or unemployed, and they possess both the ability and willingness to work. You can easily determine the frictional unemployment rate by following the above-mentioned formula.

Frictional Unemployment Example

Let me give you an example to make the concept of frictional unemployment much easier. Imagine a scenario with the main character, Adam, who recently graduated with a degree in Computer Science. Despite numerous job opportunities in this field, Adam does not secure immediate employment upon graduation.

Over the next few months, he engages in interviews with different organizations, aiming to find a position that aligns with his abilities and aspirations. This job-hunting phase, during which Adam is unemployed but actively seeking work, perfectly illustrates frictional unemployment. More examples of frictional unemployment are as follows:

• Individuals who leave their current job in search of a better job opportunity.
• People reentering the workforce after a period of absence.
• Those entering the workforce for the first time.

What Leads to Frictional Unemployment?

Frictional unemployment arises due to multiple factors related to the dynamic nature of the labor market. Some of the common reasons are discussed below:

Mismatch Skills

Frictional unemployment occurs due to a disparity between the skills of job seekers and the requirements of available jobs in the market. This issue tends to affect individuals who are either entering the job market for the first time or re-entering after the break.

The mismatch in skills and job requirements creates a transition period where these individuals may experience temporary unemployment as they navigate the process of finding the right job. Therefore, mismatching skills can cause a temporary period of unemployment.

Job Transition

It is human nature to seek better opportunities, so individuals often explore new prospects that offer improved conditions, such as better salaries, work locations, benefits, or job responsibilities. Individuals voluntarily leaving their jobs to seek better opportunities contribute to frictional unemployment.

Individuals Joining the Workforce

Graduates who have recently completed their studies and other individuals entering the job market for the first time may face challenges in efficiently locating companies with available and suitable job opportunities due to limited resources or experience. As a result, they wait for better-paying jobs instead of taking temporary work.

Temporary changes, like relocating to a different town or city, can contribute to frictional unemployment. This is because there is usually a time gap between when workers leave their current jobs and when they secure a new one.

Frictional Unemployment Vs Structural Unemployment

Structure unemployment is another type of unemployment that represents a more persistent and significant type. Frictional and structural unemployment represent distinct forms of unemployment within an economy.

Frictional unemployment, stemming from job searches, is not directly tied to economic factors and is a temporary phase. On the other hand, structural unemployment results from economic shifts that create challenges for workers in securing employment. This unemployment emerges when there are fundamental changes in the structure of the economy.

Structural Unemployment

So, what is structural unemployment? This type of unemployment, compared to frictional unemployment, is more serious. Structural unemployment mainly occurs due to fundamental changes in the economy, such as a shift in industry demands or technological advancements.

For example, when new technology arrives, some jobs may no longer be needed. This creates a gap because workers might not have the skills the new job requires. Take another example: the decline of a particular industry or sector may leave workers with skills specific to that industry facing challenges in finding new employment.

Moreover, unlike frictional unemployment, which is considered a normal part of a dynamic labor market, structural unemployment lasts longer and requires more persistent efforts, including changes in education, training, or creating new industries to help affected workers find fitting jobs. Both types have their own advantages and disadvantages.

In conclusion, frictional unemployment is short-term unemployment that happens when individuals are in the process of switching jobs, looking for better opportunities, or entering the workforce for the first time. It is a normal part of the changing job market.