What is Frictional Unemployment?

Frictional unemployment is a type of unemployment which occurs naturally in even the highest performing economies. In fact, this type of unemployment is often viewed as beneficial to workers and the economy. The existence of frictional unemployment and the closely related structural employment mean that the unemployment rate in a nation will never drop all the way to zero.

Any time someone is between jobs, this is considered frictional unemployment. Some common examples include college graduates seeking their first jobs, craftspeople who are laid off between projects, and people who quit their jobs to relocate or to seek out better employment. These individuals are usually prepared for their brief periods of unemployment, and they do not stay unemployed for very long as long as the economy and the job market are stable.

This type of unemployment is beneficial because it encourages people to seek out the jobs for which they are best suited, while giving companies the option to find the best employees. Without frictional unemployment, people would stay in the same jobs for life, creating a very static system which would tend to suppress innovation, and make it difficult for companies to seek out new employees who could provide useful skills and ideas in the workplace.

The frictional unemployment rate can fluctuate, depending on the time of year and economic circumstances. In college towns, for example, the rate is often very high in June, when students have just graduated and started looking for work. In rural areas, the rate may be higher in the winter months, when jobs in construction and agriculture are not as readily available, and people have wrapped up major projects which might require temporary labor.

People can prolong periods of frictional unemployment by holding out for the right or ideal job. Individuals who can wait are often encouraged to do this so that they end up in a job which will provide opportunities for advancement and improvement, rather than in a position which they will abandon as soon as they can find a better opportunity.

Frictional unemployment can become closely tied with structural unemployment, a situation characterized by a mismatch between available employees and available jobs. In structural unemployment, a surplus of a particular skill set or type of employee arises, and not all of these individuals can find work. One of the most famous examples of structural unemployment is the wave of highly skilled but unemployed technology professionals which appeared after the tech bubble of the 1990s.