Frictional Unemployment: Characteristics, Causes And Examples

The frictional unemployment is short – term unemployment caused by the actual process of leaving a job to start another, including the time needed to find a new job.

Frictional unemployment is always present in the economy , as a result of temporary transitions made by workers and employers, or because of inconsistent or incomplete information that both workers and employers have.

For example, someone who is applying for a job for the first time may lack the resources or the efficiency to find the company that has a suitable and available job for him and, as a result, does not accept another job, while temporarily waiting for the higher paying job. .

Another example of when frictional employment occurs is when a company refrains from hiring because it believes there are not enough qualified people available for the job, when in fact there are.

It is considered voluntary unemployment, because workers choose to remain unemployed rather than accept the first job offered to them. Therefore, frictional unemployment is usually always present in an economic system, because some people are always looking for new jobs.

characteristics

Frictional unemployment can be reduced by quickly matching potential job applicants to job openings of interest to them. This is achieved through the transmission of information.

Through job posting websites and social media, job seekers can now experience faster turnaround to get hired. This reduces the level of frictional unemployment.

Frictional unemployment is the only form of unemployment that will not be reduced through monetary expansion. In fact, if there is a monetary expansion, more job vacancies will occur, potentially resulting in increased frictional unemployment.

Friction

Friction is called the time, energy, and monetary cost used in finding a new job. Friction is an unavoidable and natural characteristic of the job search process. Friction is usually short term.

Although job seekers often keep their current position while looking for a new job, friction occurs due to uncontrollable situations when that luxury is not an option.

Frictional unemployment trends

When the economy enters a recession, frictional unemployment tends to decrease. This is because workers are afraid to quit their current jobs, even if they don’t even like it. They know it will be difficult to find better jobs.

Effects of frictional unemployment

Frictional unemployment is good for the economy. It is an indicator that individuals are looking for better positions. Because frictional unemployment can result by worker choice, this form of unemployment is not as severe as others.

In fact, frictional unemployment results in companies having a greater selection of highly qualified potential candidates applying for jobs.

Calculation of friction unemployment

The frictional unemployment rate is calculated by dividing the workers actively seeking work by the total workforce.

Workers actively seeking work are generally classified into three categories: people leaving work, people returning to the workforce, and new entrants entering the workforce.

Causes

Why does frictional employment exist? It would be more logical for workers to keep their existing jobs until they find a new one.

Mismatch between workers and available jobs

If there is a discrepancy between job applicants and the jobs available on the market, that is considered frictional unemployment. The problem can especially affect new entrants or re-entrants to the labor market.

This is generally due to an employee’s natural career progression and natural transition to a new job, industry, or role.

Frictional unemployment exists because both jobs and workers are heterogeneous. This can result in a mismatch between the characteristics of supply and demand.

This mismatch can be related to skills, pay, work time, location, attitude, taste, and a host of other factors.

Worker dissatisfaction

Workers’ anxiety about wages, benefits, the workplace, job responsibilities, etc. They can force them to quit their current job and look for something that better meets their updated expectations.

It is sometimes called search unemployment and can be based on the individual’s circumstances. A person may be looking for a job change for better opportunities, better services, higher wages and salaries, etc.

It is also possible that there is a conflict between the employer and the employees because the facilities are inadequate. This can lead to dissatisfaction leading to voluntary resignation from work. Union or worker strikes is also an example.

However, workers often have to move to another city for non-work related reasons before they can seek new jobs.

Some get married and must move to be close to their spouse’s job. Many take time off to care for family members. Some have saved enough money to be able to quit jobs that don’t satisfy them. They have the luxury of being able to search until they find the right opportunity.

Examples

A recent college graduate is looking for work and hopes that he will not find a job for another year, due to his lack of experience.

However, you receive job offers that are not in the field you studied. Because the jobs offered are not the kind of job you are looking for, please decline these offers. Therefore, this period is known as frictional unemployment.

Others are workers who move to a new city without looking for another job. Some people quit abruptly, knowing they’ll get a better job shortly.

However, others may decide to leave the workforce for personal reasons, such as retirement, pregnancy or illness, by quitting work. When they return and seek employment again, they are considered part of frictional unemployment.

Mothers who re-enter the workforce after raising their children are another example. A construction worker who moves to cooler places in the winter is yet another.

They all join the account in frictional unemployment figures, once they start looking for work. In all of these examples, your financial situations are improving.

References

  1. Investopedia (2018). Frictional Unemployment. Taken from: investopedia.com.
  2. Steven Nickolas (2018). What is the difference between frictional unemployment and structural unemployment? Taken from: investopedia.com.
  3. Kimberly Amadeo (2018). Frictional Unemployment with Examples, Causes, and Rates. The Balance. thebalance.com.
  4. Wikipedia, the free encyclopedia (2018). Frictional unemployment. Taken from: en.wikipedia.org.
  5. CFI (2018). Frictional Unemployment. Taken from: corporatefinanceinstitute.com.
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