Frictional Unemployment - Definition, Causes and Cure

There are different types of unemployments which do not arise from the same cause and do not have the same consequences. Some types of unemployment are easier to deal with.

Economists distinguish the types of unemployment into three main categories. In this article, we will have a closer look at the first type of category i.e. frictional unemployment.

Definition of Frictional Unemployment

Wikipedia defines frictional unemployment as follows:

“Frictional unemployment is the time period between jobs when a worker is searching for, or transitioning from one job to another. It is sometimes called search unemployment and can be voluntary based on the circumstances of the unemployed individual”

The keywords to note in this definition have been highlighted. These are the distinguishing factors and have been discussed below

Examples:

To supplement the definition of frictional unemployment, here are a couple of examples:

  • Transitioning: Worker A is employed in a steady job as a software engineer. He however feels that he has developed enough skill sets to obtain a job as a software team leader. He is therefore on the lookout for another job. However, at the moment he has quit his job and is focusing solely on finding a new job. Therefore, technically, at the moment, he is unemployed.

  • Fresh Graduates: Ms B has graduated at the top of her class from Michigan School of Business. She received a job offer as a supply chain manager in a leading company. However, she is passionate about the subject of finance and wants to make a career in that field. It has been 2 months since college has ended and she is still looking out for her dream job. Unable to find one at the moment, she is technically unemployed. However, she is confident that she will land a job in the next month or so.

Duration:

The first thing we need to know about frictional unemployment is that it is generally of short duration. Neither worker A nor Ms B has been unemployed for a very long duration. The average time to find a job can be anywhere between 7 to 8 months if a person is particularly choosy about the designation and profile that they would like to work in. Hence from a macro-economic point of view, frictional unemployment is not a catastrophic situation. Instead, it is a problem that will resolve itself if given some time.

Frictional Unemployment is Voluntary

The next point to note about frictional unemployment is that it is voluntary. In the case of frictional unemployment it is the workers who quit their jobs in search of better pursuits. Some of them do find a better job whereas the others have to settle for what they already had. However, it is important to note that the employers are not asking the workers to leave.

This facet is extremely important because involuntary unemployment is associated with a lot of social evils. Employees whose services are no longer required are not prepared to handle the challenge and could face situations as grave as poverty and starvation. This is not the case with Ms B and worker A. They have the means to survive the gestation period required to acquire their desired job profile.

Root Cause of Frictional Unemployment

Frictional unemployment is not caused by a shortage of jobs in the economy. It must be noted that this kind of employment is not a symptom that the number of individuals present in the labor force are more than the number of jobs present in the economy.

Rather, frictional unemployment is caused by information mismatch. There is a high probability that both Ms B and worker A will find an employer that suits their needs. They are however not aware as to who that employer is and how to get in touch with them. Therefore, searching the right employer is taking them a while and they are currently being classified as unemployed.

If there were a way to improve the information system in the economy, then the amount of frictional unemployment can be drastically reduced. Also, a lot of times, employers wait for an existing employee to quit the job before they take a new one on board. Hence, even if a person has a job which they will start working on at a future date, they will be classified as frictionally unemployed.

Cure for Frictional Unemployment

Most of the developed world is already living in the information age. In countries like UK, US and Germany, the information systems pertaining to jobs are already well developed and frictional unemployment has been drastically reduced. This reduction has been made possible by private job listing sites and placement agencies which keep a database of the jobs and job seekers and match them at the earliest.

However, in the developing world, the situation is different. The problem is not grave though and can be simply solved by adopting the same measures that have been adopted by developed countries.

To sum it up, frictional unemployment is not much of a concern for an economy and the presence of frictional unemployment is not correlated with social evils, hence it does not send alarm bells ringing in government offices.


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