Frictional Unemployment: Definition, Causes & Examples
What is Frictional Unemployment
Frictional unemployment occurs in the period between leaving one job and joining another. In other words, it is the time between when an employee leaves employment and when they transition into their new role.
It is frictional unemployment whether the employee left of their own free will or, was fired. Essentially, it refers to the time gap between two jobs but is generally a relatively small time period – usually weeks or months.
- Frictional unemployment is the period by which an individual is unemployed between two jobs.
- This period is often short, hence the term ‘frictional’.
- Frictional unemployment comes in three categories: those who left their job, people returning to the workforce, and young employees entering the market.
Frictional unemployment also covers other members of society, for instance, those who have taken a leave of absence. Perhaps to take care of a loved one or maternity leave. Or, they may be returning after a trip around the world or other sabbatical.
There are also young people who are first entering the market. When they leave education, they are officially unemployed. The period between leaving education and obtaining their first job is also known as frictional unemployment.
Characteristics of Frictional Unemployment
Frictional unemployment differs from other forms of unemployment as it is voluntary and has little to do with the wider economy. Simply put, it evolves around the decisions of individuals. For instance, Freddie may decide to leave his job because he isn’t paid enough. Or, Susan wants to take time off to look after her sick husband before returning to work.
Other forms of unemployment such as structural are based on the economy changing. Examples include technological changes or changes to international trade relations. These can lead to unemployment but are on a macro level. In other words, frictional unemployment is about individuals making decisions, whilst structural unemployment is about changes in the nature of doing business.
“Frictional unemployment differs from other forms of unemployment as it is voluntary and has little to do with the wider economy. Simply put, it evolves around the decisions of individuals.”
There is also the comparison between frictional unemployment and cyclical unemployment. Again, the difference is that individuals make the decision to leave work or delay employment. And whilst this may be influenced by the business cycle, the relationship is not strong enough to conclude causation.
It is true that workers are less likely to transfer jobs during a recession and thereby reduce frictional unemployment. However, you are equally likely to have more employees laid off, whilst others may take an extended leave before re-entering the job market.
So on the whole, it depends on the decisions of the individual, but the trend between frictional unemployment and the economic cycle is too weak. In turn, this helps us distinguish frictional against cyclical unemployment.
Frictional Unemployment Examples
Frictional unemployment comes in three different categories. They are those who left their job, people returning to the workforce, and young employees entering the market.
This could cover people who have voluntarily left, or been fired, or taken an extended absence. It may include people who need to take time off to look after others, or new employees entering the workforce. This may be for the first time or re-entering.
For example, young people will leave education and will be without a job for a period of time. This time between leaving education and obtaining a job is known as frictional unemployment.
Example #1 – Students
When students leave the education system, they are left needing to find a job. In this interim period, they are what is known as ‘frictionally unemployed’. Although they have not transitioned from one job to another, they are effectively transitioning between statistical data points.
Whilst in education, students are not counted as unemployed. However, when they leave, they transition to ‘unemployed’ unless they find a job.
Students may take the active decision to wait and find the right job rather than take a part-time offer at the local McDonald’s.
Example #2 – Maternity
In today’s age, it is common for both the father and mother to work. This leaves the issue of childcare. Some may leave this to grandparents or drop the children off at a nursery. However, many will opt to take maternity and leave their job for a short period of time before returning when the children become of school age.
Example #3 – Disgruntled Worker
Many workers have become fed up with their nine to five job. This may be due to the nature of the work, or purely the daily grind of traveling. Often, this can lead to a lot of stress and in turn their resignation.
There are many reasons a worker may become discontented. Perhaps it’s salary or the treatment they receive from other workers or their manager. Whatever it is, it can cause them to resign without another job lined up. In turn, there is a period between where they quit and a subsequent new job.
Example #4 – Career Break
Some workers may become burnt out or they just need a break from employment. Perhaps it is to spend some time to travel the world, or just engage and pursue a hobby.
They may leave the workforce, but with the intention of returning after a certain period. For instance, football managers may leave to have a break from the game. However, the intention is to ‘recharge’ and come back with more motivation and drive.
Example #5 – Looking After Relative
When a family member has a serious illness or disease, they may need to be looked after permanently. They may need to take time out of work either to look after them or at least to better cope with the emotional toll.
For some, work is a good way of moving forward and keeping occupied. Even after the death of a relative, it may be more pressing to get back into work.
Causes of Frictional Unemployment
1. Inefficient Allocation of Workers
When job-seekers enter into a new employment opportunity, they may think they are a good match and the job is what they wanted. However, as they become more accustomed to the role, it may not be what they have expected. Nor, perhaps, is it the type of position they want in the long term.
In turn, they may leave their role and join a completely different field and industry. Frictional unemployment results. This is usually more prevalent among students entering the market. At a young age, most don’t know what they want to do, so some experimenting may be necessary. However, this creates frictional unemployment between jobs.
2. Dissatisfied Workers
Overtime workers may become dissatisfied either by pay, benefits, working conditions, or even treatment by colleagues. In turn, they look for new work in order to feel valued or even receive a greater challenge.
It must be said, that there may in fact be no frictional unemployment if the worker is able to start their new role, precisely when they finish their last. However, in reality, there is likely to be at least a few days by which they are considered fractionally unemployed.
We may also have workers who have become so discontented that they quit without another job lined up. These cases are the bigger cause of frictional unemployment, as well as the most long-lasting.
3. Moving Town or City
It may be a move to a nicer city, a move to the suburbs, or, a move to be closer to a partner. These life decisions also mean new jobs. For instance, someone moving from Alabama to New York will have to leave their employment and find a new job in New York.
Inevitably, there is a level of frictional unemployment that takes place in between. It can be extremely difficult to attend interviews when you are halfway across the country. So living in local proximity is often a necessity, even if that means going unemployed for a while.
4. Unemployment Benefits
Unemployment benefits and other forms of social security afford people a safety net. This can contribute to frictional unemployment as it allows job seekers more time and opportunity to be selective. So rather than take the first job they can get, they look for more appropriate jobs.
Whilst this can contribute to frictional unemployment in the short term, it may in fact reduce it over the long term. If people are taking longer to find the right job, then theoretically, they may stay in that role for a longer period of time. That means fewer changes in jobs, which can reduce the level of frictional unemployment.
However, this may even itself out over time as a job seeker spends a long time looking for a job, to begin with, as opposed to spending short amounts of time unemployed between many jobs.
5. Personal Reasons
Other workers may leave employment because they are sick, to care for family, or due to pregnancy. There are a number of personal reasons that someone may need to take time off from work. In turn, this can contribute to frictional unemployment.
Frictional unemployment is the time between when someone leaves one job and enters another. For example, an employee might leave employment due to disatisfcation in their role. It then takes them 2 months to find a new job. During that period, they are seen to be in frictional unemployment.
Frictional unemployment occurs when employees transfer between job roles. It is the time period between when the worker starts searching for a job and when they secure that job.
One such example might be when an employee moves to a new state, town, or nation. During the period between the move, they may be unemployed for some time until they secure a new role in their new location.
The four main types of unemployment are:
1. Frictional Unemployment
2. Cyclical Unemployment.
3. Structural Unemployment.
4. Institutional Unemployment.
Paul Boyce is an economics editor with over 10 years experience in the industry. Currently working as a consultant within the financial services sector, Paul is the CEO and chief editor of BoyceWire. He has written publications for FEE, the Mises Institute, and many others.