What is Frictional Unemployment?
Frictional unemployment occurs when unemployed individuals look for jobs as a part of life transitions or after quitting previous employment to find a better one. Short-lived frictional unemployment, in a way, reflects that the economy has enough jobs for workers to have the courage to quit and find a replacement.
- Frictional unemployment is a temporary situation when workers go unemployed to find a new job after quitting the previous one.
- Such unemployed individuals include fresh graduates or new entrants, job resignees, and re-entrants who earlier took a break from employment.
- Several reasons could cause the unemployment here; fresh graduates looking for first jobs, workers unable to carry on with current employment as it does not meet their expectations, people ending their career break, etc.
- Frictional unemployment does not raise much alarm while framing the national policies as it is unavoidable and usually lasts for a short term.
- People mostly steer clear of resignations during an economic downtrend due to a shortage of available jobs.
How Does Frictional Unemployment Work?
Frictional unemployment emerges from the growing career goals of individuals. It differs from other unemployment types as job seekers in frictional unemployment don’t go out of work due to automation or recession. Instead, they quit their current jobs to find a more suitable employer or were new entrants who had just winded up their studies.
In contrast, structural unemploymentStructural UnemploymentStructural unemployment occurs when there is a disparity between the knowledge and skills demanded by an employer and those offered by his or her employees. It is typically caused by economic changes such as recessions, deindustrialization, and other factors, and it results in individuals being unable to find work due to differing skill requirements. occurs due to a gap between job seekers’ skills and employer requirements. Both these forms of unemployment are a continuous part of an economy.
Employers could change role requirements to improve business, and workers can quit finding a better job if unsatisfied with the current one. As such, both structural and frictional unemployment constitute the natural rate of unemployment. The natural unemployment rate isn’t an alarming indicator if the rate is low, there is no recession, and people are not losing jobs due to economic debacle.
Causes of Frictional Unemployment
- Employee Dissatisfaction: Many times, the workers feel disappointed or are unhappy at their current job due to low wages, poor working conditions, or role ambiguity; thus, they quit their position.
- Skill Gap: The employees prefer to leave when they find themselves incompetent for a position. They sometimes lack complete knowledge, skills, or expertise essential to fulfill the given task.
- Personal Reasons: Sometimes, workers resign due to personal reasons and then look for a new job to re-enter the workforce. Such individuals may quit due to the family moving out of town, further studies, raising a newborn child, health conditions, etc.
- Education: Fresh graduates who have never been employed and are out of work till they join their first job.
- Economic Conditions: A booming and supportive economy that allows unemployment insurance can support the unemployed till they find a replacement. In addition, it can give workers the courage to quit existing employment with the assurance of finding a better one.
Frictional Unemployment Examples
We have described the types of job seekers under frictional unemployment using some examples below –
- Re-entrants after a career break
A was working in an MNC, but she took two years of break from her job for child care after having a baby. Now that the boy is two years old, she is looking for a job again. However, until she gets a job, she will remain unemployed.
2. Job Resignees
B is a finance graduate but went into a different profile, i.e., of operations executive. However, he always felt a skill mismatch and left the job to find one in the finance field.
3. New Entrants in the workforce
C has recently completed her graduation. She is now looking for her first job as a fresher.
Effect on Unemployment Rate
Unemployment rate = Job Seekers (Looking for Job) / Total Workforce of Economy
Frictional unemployment is a contributor to the national unemployment rate as many economic factors affect both. For instance, this McKinsey research had suggested that by 2030, at least one-third of the United States employees could be jobless due to automation. Delays in finding a solution for the jobless will also increase frictional unemployment rates.
When the economy is in recession, the number of frictionally unemployed experiences downfall as more people are concerned about their job security. They stick to what they have. Conversely, when the economy is experiencing a boom, employees start shuffling, hoping for better opportunities, resulting in an increased rate.
How to Reduce Frictional Unemployment?
Due to the recent surge in social media usage and other professional communications, one can use the untapped power of the internet to increase employment. There are various job portals and websites that suggest jobs as per your requirements and skills.
The regulators can conduct skill training and development sessions or help the job aspirants in pursuing short-term courses. Thus, equipping prospective job seekers with the skill set that the companies require to reduce the number of those unemployed.
Companies should take active participation in reducing this type of unemployment. They can conduct exit interviews to know the reason behind the employee’s resignation. Accordingly, they can take retention measures such as reconsidering the incentives or offering a promotion to the leaving personnel.
Frictional vs Structural Unemployment
Frictional unemployment occurs when employees leave a job to find other proposals or a fresh graduate plan to step into a new job. On the contrary, structural unemployment occurs when even after abundant opportunities, people remain jobless due to under-qualification.
The former is a temporary situation and is not caused due to financial issues. In comparison, the latter is a long-term problem resulting from a change in the economic factorsEconomic FactorsEconomic factors are external, environmental factors that influence business performance, such as interest rates, inflation, unemployment, and economic growth, among others..
A shot-term frictional unemployment is usually not considered alarming while discussing economic reforms since it is an unavoidable condition. On the other hand, structural unemployment has a long-lasting impact on the country’s economy and holds a significant place in unemployment rate determination.
Frictional unemployment refers to the unemployment caused due to personal life transitions such as a career break or when a worker quits and is unemployed while looking for a better job.
Frictional unemployment occurs when workers remain jobless while looking for a suitable opportunity and structural unemployment occurs when there are multiple jobs available, but the job aspirants are underqualified.
The regulators can check this form of unemployment with the help of these measures:
• Spreading the job vacancy information through social network, newspapers, employment exchange, etc.;
• Ensuring that the employer allows job flexibility to the workers;
• Reducing discrimination and intolerance among the employees.
This has been a guide to frictional unemployment and its definition. Here we discuss how to reduce frictional unemployment along with examples. We also discuss its causes and effects. You may learn more about finance from the following articles –