Frictional unemployment is a type of unemployment that occurs when workers are temporarily between jobs, actively searching for new employment opportunities that better match their skills, preferences, and salary requirements. It is considered a natural and even healthy part of a dynamic economy, as it reflects the time it takes for employers and workers to find suitable matches. This concept falls under the broader category of [macroeconomics].
Frictional unemployment is always present in an economy, even in times of full employment. It encompasses individuals who are voluntarily leaving one job to seek another, new entrants to the labor force (such as recent college graduates), or those re-entering the workforce after a period of absence, such as for family care or further education.36
History and Origin
The concept of frictional unemployment has been integral to the understanding of labor markets for decades. Its origins are intertwined with the development of macroeconomic thought, particularly the recognition that unemployment is not solely a product of economic downturns. Early 20th-century economists and social reformers began to analyze the various factors contributing to joblessness.
A significant figure in the study of unemployment was William Beveridge, a British economist and social reformer. In his 1909 work, Unemployment: A Problem of Industry, Beveridge argued that unemployment was significantly influenced by the organization of industry itself.35 He played a key role in establishing a national system of labor exchanges in 1909, which aimed to improve the matching of job seekers with available positions, directly addressing the "friction" in the labor market.34 His later work, the 1942 "Beveridge Report," laid the groundwork for the modern welfare state in the United Kingdom, emphasizing the importance of addressing "idleness" (unemployment) as one of five "giants" on the road to reconstruction.32, 33 The concept of frictional unemployment became a cornerstone in defining the "natural rate of unemployment," a term later popularized by Milton Friedman in 1968, suggesting that even at full employment, some level of joblessness due to market frictions is inevitable.30, 31
Key Takeaways
- Frictional unemployment is temporary and voluntary, stemming from individuals moving between jobs or entering/re-entering the workforce.
- It is considered a normal and often beneficial aspect of a healthy, dynamic economy.28, 29
- This type of unemployment contributes to the [natural rate of unemployment], which is the lowest sustainable unemployment rate an economy can achieve without accelerating inflation.26, 27
- Factors such as the availability of information on job openings and the willingness of workers to relocate influence the level of frictional unemployment.25
Formula and Calculation
Frictional unemployment is not calculated with a specific standalone formula in the way that, for example, the unemployment rate is derived. Instead, it is understood as a component of the overall [unemployment rate]. The unemployment rate is typically calculated as:
Here, the [labor force] includes both employed individuals and those actively looking for work. Frictional unemployment specifically refers to a portion of the "Number of Unemployed People" that is actively engaged in a job search or transition. While there's no direct formula for just frictional unemployment, economists often consider the "quit rate" from the Job Openings and Labor Turnover Survey (JOLTS) as an indicator of voluntary job transitions, which contribute significantly to frictional unemployment.22, 23, 24
Interpreting Frictional Unemployment
Interpreting frictional unemployment involves understanding its role within the broader context of labor market dynamics. A certain level of frictional unemployment is not only expected but also desirable in a robust economy. It indicates that workers have the flexibility to seek better opportunities, and that businesses are creating new roles. When frictional unemployment is high, it might suggest inefficiencies in job matching or an abundance of job openings compared to immediately available workers. Conversely, an extremely low level could imply a rigid labor market where workers are less willing or able to transition between roles.
Analysts often examine frictional unemployment in conjunction with other types of unemployment, such as [structural unemployment] and [cyclical unemployment], to gain a comprehensive view of the labor market. Changes in the labor force participation rate can also provide context for interpreting unemployment figures, as they indicate shifts in the proportion of the population that is employed or actively seeking work.18, 19, 20, 21
Hypothetical Example
Consider Sarah, a highly skilled marketing specialist working at "InnovateCorp." She has been with the company for five years and feels ready for a new challenge that offers more opportunities for career advancement and a higher salary. Sarah decides to resign from InnovateCorp to actively search for a new position.
During the two months it takes her to find and secure a new role at "Global Brands Inc.," Sarah is considered frictionally unemployed. She is not jobless due to an economic downturn (cyclical unemployment) or a mismatch in her skills with available jobs (structural unemployment). Instead, her unemployment is a result of the natural process of searching for and transitioning to a better job opportunity within a healthy [job market]. This period allows her to explore various company cultures and negotiate a compensation package that aligns with her value.
Practical Applications
Frictional unemployment is a crucial consideration for policymakers, economists, and individuals navigating the job market.
- Policy Implications: Governments often implement policies aimed at reducing the duration of frictional unemployment without impeding healthy labor market fluidity. These include investments in job search platforms, career counseling services, and unemployment benefits that provide a safety net while individuals search for suitable work. The U.S. Bureau of Labor Statistics (BLS) collects data through surveys like the [JOLTS report], which provides insights into job openings, hires, and separations, offering a real-time view of labor market frictions.15, 16, 17
- Economic Health Indicator: Economists view frictional unemployment as an inherent part of the [natural rate of unemployment]. A stable and relatively low natural rate, which includes frictional unemployment, is often seen as a sign of an efficient labor market and overall economic stability.11, 12, 13, 14
- Individual Career Planning: For individuals, understanding frictional unemployment highlights the importance of continuous skill development, networking, and strategic job searching. It underscores that periods between jobs can be productive times for professional growth and finding a better professional fit. This proactive approach to [career management] can minimize the duration of frictional unemployment.
Limitations and Criticisms
While frictional unemployment is generally viewed as benign and a sign of a functioning labor market, it is not without its limitations and criticisms.
One limitation is the difficulty in precisely measuring and distinguishing it from other types of unemployment. In practice, it can be challenging to determine if an individual's job search is purely "frictional" or if it's prolonged by underlying structural issues or a temporary economic slowdown. For example, a recent graduate facing a competitive job market might experience extended frictional unemployment, but this could also be symptomatic of a [skills gap] or a weakening economy.
Another criticism revolves around the idea that even "voluntary" unemployment can impose significant costs on individuals and the economy. Lost wages for the unemployed person and lost output for the economy are real costs, regardless of the cause. Furthermore, while unemployment benefits can provide support, they have sometimes been cited as potentially extending the duration of frictional unemployment by reducing the urgency to accept the first available job. However, these benefits are also critical in allowing workers to find jobs that are a better match for their skills, leading to greater productivity and job satisfaction in the long run.
Frictional Unemployment vs. Structural Unemployment
Frictional unemployment and structural unemployment are both components of the natural rate of unemployment, but they stem from different underlying causes and have distinct implications.
| Feature | Frictional Unemployment | Structural Unemployment |
|---|---|---|
| Cause | Voluntary transitions between jobs, new entry or re-entry into the workforce, and the time it takes for job seekers and employers to find optimal matches. | Fundamental shifts in the economy, such as technological advancements, changes in consumer demand, or globalization, that render certain skills obsolete or industries in decline. |
| Nature | Short-term and temporary. It is a natural part of a dynamic labor market. | Long-term and persistent. It reflects a mismatch between the skills of the available workforce and the skills demanded by employers.9, 10 |
| Voluntary/Involuntary | Primarily voluntary, as individuals choose to search for better opportunities or enter the workforce. | Largely involuntary, as workers may lose jobs due to factors beyond their control, such as automation or industry decline, and lack the skills for newly available positions.6, 7, 8 |
| Policy Response | Focuses on improving job search efficiency, such as job boards, career counseling, and labor market information. | Requires long-term solutions like retraining programs, education initiatives, and relocation assistance to bridge the skills gap and facilitate occupational mobility.5 |
| Example | A software engineer quitting their current job to find a position with a higher salary and more challenging projects, or a recent college graduate looking for their first professional role. | A coal miner losing their job due to a shift towards renewable energy, who then lacks the specific skills needed for jobs in the renewable energy sector, or a factory worker replaced by robotics.2, 3, 4 |
While frictional unemployment is a sign of a fluid and adaptable economy, structural unemployment poses a more significant challenge, often requiring substantial investment in [human capital] development and economic restructuring.1
FAQs
Is frictional unemployment a good thing?
Yes, frictional unemployment is generally considered a healthy and unavoidable aspect of a dynamic economy. It allows workers to find jobs that best suit their skills and preferences, leading to higher productivity and job satisfaction. It also signifies that there are new jobs being created and that individuals have the freedom to seek better opportunities.
How does frictional unemployment affect the economy?
Frictional unemployment has a relatively minor impact on the overall economy compared to other types of unemployment. While it represents a temporary loss of output, it contributes to a more efficient allocation of labor resources in the long run. It is a component of the [full employment] level of unemployment.
Can frictional unemployment be eliminated?
No, frictional unemployment cannot be entirely eliminated. As long as there is movement of individuals into, out of, and between jobs, there will always be some period of job searching. Efforts are focused on reducing its duration and impact, rather than eliminating it entirely. Improving access to [labor market data] and streamlining job search processes can help.
What is the natural rate of unemployment?
The natural rate of unemployment is the lowest unemployment rate an economy can sustain without causing inflation to accelerate. It is comprised of both frictional and structural unemployment. At the natural rate, there is no [cyclical unemployment], meaning the economy is operating at its full potential.
What causes frictional unemployment?
Frictional unemployment is caused by various factors, including individuals voluntarily quitting jobs for better opportunities, new graduates entering the workforce for the first time, people returning to the workforce after a break, and geographical shifts in job opportunities. It is essentially the time lag inherent in matching job seekers with available job openings.