Definition of Frictional Unemployment
This is unemployment that occurs from the inevitable time delays in finding new employment in a free market. It may also be called ‘search unemployment’ as it relates to the time taken to search for new employment.
For example, if you graduate from university, you can’t necessarily expect to find a job straight away which matches your skills. This period of searching for a job is known as frictional unemployment.
Frictional unemployment will also occur when people are switching between jobs, either because they have been made redundant or are looking for new employment.
Frictional unemployment would generally be classed as voluntary unemployment because workers are choosing to remain unemployed rather than get the first job that comes along.
Impact of frictional unemployment
Frictional unemployment isn’t necessarily inefficient. It might be better people wait to find the right job rather than a PhD student getting a job as a burger flipper at McDonald’s. Frictional unemployment and the willingness of workers to wait also means that firms will have a wider choice of candidates
However, even short-term unemployment can have a negative impact on the unemployed. It can cause households with limited savings to fall behind bill payments and end up in more debt. Even short-term unemployment can be stressful and may reduce the confidence of those without work.
A concept of full employment would acknowledge the existence of some frictional unemployment. For example, if frictional unemployment accounts for 2% of the workforce; an unemployment rate of 2% would be considered to be ‘full employment’.
How to reduce frictional unemployment
- Reduce unemployment benefits. Lower benefits will encourage people to take a job quicker.
- However, it is not clear whether this is desirable. It may encourage people to take a job not fully suited to their skills.
- Better matching of labour with vacant positions. Internet job matching websites have the potential to find quicker job vacancies for the unemployed. If the database is comprehensive for all positions, then workers can more easily see which jobs to apply to. There is a case for the government to undertake a comprehensive job matching service as private sector competition may diffuse the market.
Trends in frictional unemployment
In a recession, frictional unemployment tends to fall as workers have less confidence to wait for a better job. They are more likely to stay in their current job or take the first job that comes along.
The UK and US have seen a fall in the natural rate of unemployment in recent years. This is due to many factors but could be partly due to lower frictional unemployment (relatively lower benefits) and improved job matching websites.
Related
Should’t The equilibrium unemployment rate, that that does not generate inflation, be lower now than historically due to lower frictional unemployment due to technology in the job search and matching processes with the internet, remote interviews, working from anywhere, etc? Why haven’t I heard this argument now that the unemployment rate is below 5% in the US but there is no sign of inflation? This could be an argument to press the Federal Reserve to stop increasing rates as if we were in 1999!
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