Frictional Unemployment

Definition

Frictional unemployment refers to the temporary joblessness that occurs when workers are in the process of transitioning between jobs or entering the workforce for the first time. It arises from the normal job search and hiring process, as workers seek the best match between their skills and available job opportunities.

5 Must Know Facts For Your Next Test

1. Frictional unemployment is considered a necessary and healthy part of a well-functioning labor market, as it allows workers to find the best job matches.
2. The duration of frictional unemployment is typically short, lasting only as long as it takes for workers to find a suitable job.
3. Factors that contribute to frictional unemployment include geographical mobility, information asymmetries, and the time it takes to match workers' skills with available job openings.
4. Frictional unemployment is not caused by deficiencies in aggregate demand, but rather by the normal process of job search and hiring.
5. Policies aimed at reducing frictional unemployment may include improving job search assistance, enhancing labor market information, and promoting workforce training and development.

Review Questions

• Explain how frictional unemployment is defined and computed in the context of 21.1 How Economists Define and Compute Unemployment Rate.
  • Frictional unemployment is a component of the overall unemployment rate, as defined by economists. It refers to the temporary joblessness that occurs as workers transition between jobs or enter the labor force for the first time. Frictional unemployment is considered a normal and necessary part of a well-functioning labor market, as it allows workers to find the best job matches. When calculating the unemployment rate, frictional unemployment is included alongside other types of unemployment, such as structural and cyclical, to provide a comprehensive measure of the labor market's health.
• Discuss the role of frictional unemployment in the patterns of unemployment described in 21.2 Patterns of Unemployment.
  • Frictional unemployment plays a key role in the patterns of unemployment observed over time. As workers move between jobs or enter the labor force, frictional unemployment contributes to the natural rate of unemployment, which persists even when the economy is at full employment. Frictional unemployment may also fluctuate with changes in the business cycle, as the job search and hiring process can be more or less challenging depending on economic conditions. Understanding the role of frictional unemployment is crucial for analyzing the underlying causes and trends in unemployment patterns across different time periods and regions.
• Analyze how changes in frictional unemployment over the long run can impact the causes of unemployment discussed in 21.4 What Causes Changes in Unemployment over the Long Run, 24.6 Keynes' Law and Say's Law in the AD/AS Model, and 32.3 Causes of Unemployment around the World.
  • Frictional unemployment can have significant long-term implications for the causes of unemployment. Reductions in frictional unemployment, through improved job search assistance, enhanced labor market information, and workforce training, can contribute to a lower natural rate of unemployment. This, in turn, can influence the dynamics described in Keynes' Law and Say's Law, potentially shifting the balance between aggregate demand and supply and affecting the underlying causes of unemployment. Furthermore, cross-country differences in the level of frictional unemployment may be a factor in the varying causes of unemployment observed around the world, as discussed in 32.3. Analyzing the role of frictional unemployment is crucial for understanding the complex and interrelated drivers of unemployment over the long run.

Related terms

Structural Unemployment: Structural unemployment is a form of unemployment caused by a mismatch between the skills that workers in the economy can offer and the skills demanded by employers, often due to changes in technology, consumer demand, or the structure of the economy.

Cyclical Unemployment: Cyclical unemployment is the type of unemployment that varies with the business cycle, rising during recessions and falling during periods of economic growth.

Natural Rate of Unemployment: The natural rate of unemployment is the level of unemployment that exists in an economy due to the normal job search process and other factors, even when the economy is at full employment.