Frictional Unemployment-Overview and Examples

August 19, 2021

Frictional unemployment or search unemployment as it is sometimes called refers to When workers are unemployed and searching for work in a stable healthy economy. It doesn’t matter whether they are fired or leave involuntarily. Others might be returning to work. It’s differentiated from other type of unemployment because it’s part of normal healthy labor market turnover.

Contrary to other types of unemployment, frictional unemployment doesn’t increase in an economic recession. On the contrary, during a recession, it tends to decline because workers become more concerned about job security since fewer job opportunities are available in the healthy labor market.

It is inevitable to experience frictional unemployment. It’s often temporary, which is the good news. It is one component of natural unemployment. This is the lowest level of unemployment benefit in a developing healthy economy. Employers can’t find enough workers to produce as much as they want if there is less than this level of unemployment. 

This slows down economic growth. Another component is structural unemployment. This is when the skills of workers don’t meet the needs of employers.

Causes of Frictional Unemployment

1. A mismatch between available jobs and workers

This is known as frictional unemployment. This issue can be particularly problematic for new or re-entrants to work. This is usually due to an employee’s natural progression in their career and their natural transition into a new industry or job.

2. Workers are dissatisfied with their work conditions

Workers’ anxiety towards salaries, benefits, work location, job responsibilities, etc. They may have to leave their job and find a new one that meets their needs.

Effects of Frictional Unemployment

Economists see reasonable levels of frictional unemployment to be a positive for the economy. This gives businesses an increased pool of human capital. Due to frictional unemployment, companies may gain access to more qualified employees.

If job-seekers take too long to find a job, this phenomenon can have adverse side effects of unemployment. This can cause job-seekers to become more frustrated, which can result in a decline in productivity. A longer period of frictional unemployment could lead to a decline in production over a period of time.

How to Overcome Frictional Unemployment?

As mentioned above, frictional unemployment that exceeds reasonable levels of rate of unemployment can have a negative impact on the economy. Therefore, regulators must monitor the level of unemployment and take appropriate actions to address it. To keep the naturally occurring unemployment at an acceptable level, there are some actions you can take:

1. Increase information exchange between job-seekers & employers

Low information transfer is the main reason for frictional unemployment. The application of mediums (such as social networks, online job boards) that allow faster information exchange will reduce the matching time between the job seekers and employers, and subsequently minimum unemployment rate.

2. Refrain from prejudice towards workers, jobs, and locations

Regulators must resist prejudices by making certain jobs and locations more attractive to workers.

3. Increase job flexibility

Employers may be encouraged to offer more flexibility to potential employees in order to make job opportunities more appealing to job-seekers.

How Frictional Unemployment work?

Some are people who have moved to another area without looking for work. Some people leave abruptly knowing that they will soon find a better job. Others might leave the workforce due to personal reasons, such as sickness, retirement, or pregnancy. They leave the workforce. They are considered to be part of the frictional unemployment group if they return to work and begin looking again.

Students who graduate are an excellent example of frictional unemployment. They enter the workforce and remain unemployed until they find employment. Another example is the return to work of parents who have taken time off to care for their children. Once they begin looking for work, all of them join the count in frictional unemployment.

 They are all improving their financial situation in each of these cases.

What Does it Mean for the Economy?

An economy is not at risk from frictional unemployment. This is not the same as cyclical unemployment or unemployment cyclical which can result from a recession. Businesses will lay off employees if they don’t like their jobs. A rise in frictional unemployment means that more workers are moving towards better jobs.

Actually, frictional unemployment is good for the economy. This gives companies more chances to find qualified workers. It would make it harder for companies to hire good workers if everyone kept their jobs. Cost-push inflation would result in higher labor costs. The wage dispersion of workers would rise, decreasing income inequality in the United States.

Solutions for Frictional unemployment

Information about job flexibility and opportunities can help reduce frictional unemployment rate. This can be done by using job matching services such as Simply Hired or Monster.

But it still takes time to write a compelling resume, search for the right job, and apply. The interview process is also a lengthy one.

Job seekers need to wait for a reply. Job seekers often find their best source for jobs in search through their professional networks. LinkedIn, Twitter, Facebook and Twitter have all been great for professional networking.

Expansionary monetary policy cannot reduce frictional unemployment. In fact, that might even increase it. Full-time job are more plentiful in a boom economy. Employers often have difficulty finding qualified candidates. Workers feel more comfortable quitting their job in the expansion phase of a business cycle. This increases frictional unemployment.

How to calculate the frictional unemployment rate

The Bureau of Labor Statistics measures frictional unemployment. It measures those who actively searched for work in the past four weeks. The Bureau of Labor Statistics Monthly Employment Report is available. Visit the “Employment Situation Summary Tab A.” Seasonally adjusted household data. Find “Reasons for unemployment.” 

These three numbers provide a good estimate for the frictional unemployment:

1. Job-leavers; are those who have voluntarily left their job
2. New entrants
3. Reentrants

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