Frictional Unemployment

Updated Feb 6, 2023

Unemployment is a major concern for any economy. It is defined as the state where individuals are willing and able to work but are not currently employed. Unemployment can occur due to various reasons, one of which is frictional unemployment. In the following paragraphs, we will explore the definition, examples, and significance of this type of unemployment.

Definition of Frictional Unemployment

Frictional unemployment refers to the temporary unemployment that exists as a result of workers searching for new employment. This type of unemployment is called frictional because it is the natural result of the friction that arises from the time it takes for workers to transition between jobs.

Examples

Let’s consider two examples to better understand frictional unemployment. Jenny is a 35-year-old teacher in Southern California who has been teaching for several years. She feels that it’s time for a change and decides to quit her job. It takes her a few weeks to find her new dream job, during which she is considered unemployed.

Another example is John, a 22-year-old student who recently graduated cum laude from the University of Southern California (USC). John is looking for his first job just weeks after graduation and has already had several job interviews. However, until he finds a job, he is considered unemployed.

Why Frictional Unemployment Matters

Frictional unemployment is a crucial part of any economy with a free-moving workforce. It is inevitable even in the strongest and healthiest economies because it takes time for workers to transition between jobs. This type of unemployment is considered beneficial to the economy as a whole for several reasons.

Firstly, it allows workers to find better employment that matches their skills and preferences. Secondly, employers can choose from a larger pool of qualified candidates, ensuring that they can fill positions with the best candidates. Finally, it is short-term in nature, which means it does not require as many government resources as other forms of unemployment, such as unemployment benefits.

Summary

Frictional unemployment is a temporary form of unemployment that occurs due to the time it takes for workers to transition between jobs. It is an essential part of any economy with a free-moving workforce (i.e., there will never be zero unemployment) and is actually considered beneficial to the economy as a whole because it facilitates a good match between companies and their workforce. Thus, by understanding frictional unemployment, we can gain a deeper understanding of the dynamics of the job market and the role it plays in the economy.