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Frictional unemployment is the short-term unemployment of people who are changing jobs, careers, or locations. This category of unemployment includes the jobless who have the skills and competencies to land a job, and are in the process of finding a job, but have not landed a job yet. Workers who look out for a new job when still retaining their old jobs do not count under frictional unemployment.
This type of unemployment exists because of the mismatch between the characteristics of supply and demand in the job market. The characteristics of mismatch include skills, payment, work timing, location, attitudes, tastes, and other factors. In this sense frictional unemployment closely resembles structural unemployment where a surplus of a particular skill set or type of employee arises, with not all such individuals able to find work, such as what happened when many highly skilled technology professionals remained unemployed after the tech bubble of the 1990s.
People who hold on for the right or ideal jobs prolong frictional unemployment in the short term, but since they remain less likely to change such a dream job, reduce frictional unemployment in the long run. Frictional unemployment, however, can never be eliminated, for even in the best of market economies, some people will always be between jobs.
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Types of Frictional Unemployment
In some employment sectors, workers receive more than the price-adjusted equilibrium wage. This restricts the amount of employment in the high-wage sector and attracts workers from other sectors who wait to get jobs in this high-paying sector. This creates “wait unemployment,” a type of frictional unemployment.
Some sectors such as agriculture and tourism require seasonal workers and lay off employees during the off-season. This creates “seasonal unemployment,” another type of frictional unemployment.
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Frictional unemployment arises due to many reasons, such as:
- Expansion of the workforce when young people get out of school or college equipped with the necessary skills to land a job.
- People having taken a break from employment to raise children or any other reason look to re-enter the workforce.
- People quitting their jobs and relocating to new places.
- People quitting their jobs owing to disagreements, lack of compatibility, or any other reason.
- People losing their jobs because the company goes bankrupt, or owing to layoff or termination for any reason.
- People out of work owing to ending of the contract, as happens to construction workers, actors, and others.
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Why is frictional unemployment important to have in any economy?
Many economists consider frictional unemployment a sign of economic well-being, for this type of unemployment only exists in a fast-growing economy with an expanding, mobile, flexible, and adaptable labor force having choices.
Frictional unemployment benefits the workers as it allows them to seek the jobs they like most and for which they remain best suited, and benefits the companies by allowing them to choose from among the best talent. Absence of frictional unemployment entails people remaining in the same jobs for life, creating a static system that suppresses innovation and rusticates skills.
Negative fallouts of frictional unemployment come when workers delay re-entering the workforce or when job mismatches become too frequent. This reduces the availability of talent to companies and increases turnover, causing losses to productivity and the economy as a whole. This causes governments and policymakers to try and reduce frictional employment.
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How to Reduce Frictional Unemployment
Frictional unemployment never reaches zero because there always remain some companies with some unfulfilled vacancies and some candidates looking for jobs. Improved labor market efficiency and seasonal factors, however, reduce frictional unemployment.
The level of frictional unemployment depends mostly on seasonal factors such as college graduation times, peak business seasons, agriculture harvest seasons, and related variables.
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- Deardoff, Alan, John W. Sweetland Professor of Economics at the University of Michigan: Deardorff's Glossary of International Economics. "Frictional Unemployment." Retrieved from http://www-personal.umich.edu/~alandear/glossary/f.html on 20 October 2010.
- Drexel University. "Frictional Unemployment." Retrieved from http://faculty.lebow.drexel.edu/McCainR//top/Prin/txt/probs/Ch5_fricUnN.html%20on%2020%20October%202010.