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What is Frictional Unemployment?

Frictional Unemployment

With the high unemployment rate these days, and the bad economy people aren’t hiring, but one thing many people might not realize and that’s that there are different TYPES of unemployment. Interestingly, even during good times there is something called frictional unemployment.

Different from the big picture assumption that unemployment is a result of lay-offs, budget cuts and a bad economy,  frictional unemployment is pretty much VOLUNTARY on the employee’s part and almost circumstantial, as it occurs when there is a job aligned for the individual’s skills, it just can’t be filled for the time being due to clerical issues, background checks and screening processes, relocation issues and more.

Frictional UnemploymentYet, studies have shown that during times of economic downturns and recession, the number of people experiencing “frictional unemployment” drops drastically, as individuals begin to fear making any career moves. When the economy goes south, generally the number of available jobs decreases, which means there are a limited number of alternative opportunities for employees to pursue. Everyone seems to revert into survival mode and clings to anything that won’t rock the boat. Fewer people change jobs so the “friction” during the interim period is lower.

In common terms we might say: Rather than being unemployed because they can’t find a job they are just “between jobs”. They know there is a job waiting it is just a matter of finding it and filling it. In good times people are more likely to quit a job and then start looking for something they like better rather than hanging on until they have everything lined up.   In today’s ecomomy it is hard to imagine someone giving up a job (any job) but when the economy is humming along this is more prevalent.

Primarily the best thing to know about frictional unemployment is that it’s really just a bad case of phone tag—the jobs and opportunities are there, you just keep missing each other. More a result of delayed red tape, scheduling issues, background checks and formalities, all you can really do is grin and bear it until all the details are worked out.

About the Author: With a history in personal data analysis, Jane Smith’s posts offer an inside look at the world of free background checks. You can reach her at janesmith161@gmail.com for more information.

Frictional Unemployment Basics

Frictional unemployment is a term used to describe a situation in which an individual is moving from one job to another. The individual may be actively searching for work or may simply have some down time between jobs. This is sometimes also referred to as search unemployment. This form of unemployment can be voluntary because someone may quit a job to find another one. This makes it something different from regular unemployment, because those who are truly unemployed were let go from their jobs and haven’t yet been able to find another job.

Who is Included in This Category?

A number of different groups of people could be included in figures for frictional unemployment. For example, people just graduated from college and have not yet been able to get a job are in this category. Homemakers who just recently decided to get back into the workforce after raising kids would also be in this group.

Another scenario that also falls into frictional unemployment is called “wait unemployment.” With this scenario, individuals are waiting to get into a particular field because the wages are higher than the market clearing equilibrium. This occurs when people are interested in getting into a particularly prestigious position, and they will wait their turn. For example, if someone really wanted to get a job with Google, he might apply and then do an unpaid internship in the mean time. This person may be able to get a job elsewhere, but he is choosing to wait on an opening at his ideal job.

Some people in this situation are also considered to be underemployed. For example, if they are waiting to get a job in their chosen field and they work as a waiter in the mean time, they aren’t really reaching their full potential.

Dealing With Frictional Unemployment

In every society, there will always be a certain amount of friction on employment. People are not always going to be happy with their jobs, and they want to be able to find the job that they really want. This can happen because their skills in a match up with the job that they have. They may not like the location of their work, or they don’t feel like they are getting paid enough. They may not like the work environment, or it could be caused by hundreds of other reasons.

Although some level of frictional unemployment is always expected, societies and governments want to be able to reduce the number of people who fall into this category. When there is frictional unemployment, it means that some available work that needs to be completed is not getting done. How exactly can frictional unemployment be reduced in a society?

In some cases, governments are able to provide incentives and assistance to people who are unemployed in this manner. By providing job placement services at universities and colleges, this can also help reduce the group that is in this category straight out of college. In some cases, relocating industries and services to other areas can help reduce frictional unemployment also. When the jobs that people want are closer to them, there will be less voluntary unemployment.

Changing the way workers are taxed can also have a positive effect on frictional unemployment. When tax rates are changed so that the difference between gross and net pay is not as drastic, employees may be willing to stay put in their jobs more often. This reduces the number of people who are out searching for higher paying jobs, and instead keeps them working.

Sometimes, simply having access to information about jobs and openings is all it takes to reduce frictional unemployment. Many people get into a particular career because they do not know what else to do, and they don’t feel like they have a lot of options. Once they are there, they want to do something else because they don’t like it.

There will always be some level of frictional unemployment, but it is in society’s best interest to minimize it as much as possible.

About the author: Chris Keenan is a blogger for NJ immigration attorneys providing NJ lenders with best hiring practices tips.