logo
“If you don't find a way to make money while you sleep, you will work until you die.” - Warren Buffett

What Is Frictional Unemployment?


The term frictional unemployment refers to the temporary transitions by individuals.

It primarily refers to the period when an individual is moving from one job to another.

Now... before you read the rest of this article, make sure to check This System.

Typically this unemployment period is rather temporary.

It is the outcome of employers or employee having or giving incomplete information.

So it can be anything from the job profile not matching to the discrepancy in qualifications.

Most times frictional unemployment is voluntary.

Frictional UnemploymentHowever, there are times when this can be part of a broader termination drive too.

The friction here refers to the inconsistencies an individual faces.

It can be in relation to time, location, profile, hours or any such factors.

In many ways, the frictional unemployment is an inseparable part of modern job search.

Gone are the days when people used to join a company and retire from the same.

That is almost an unheard of phenomenon in modern times.

In many ways, employment conditions and aspirations too have undergone a sea change.

That is also a reason why this leads to potential friction in the overall scenario.

But that apart, many other reasons result in frictional unemployment.

Personal considerations are primary in this case.

Given the rise in nuclear families, individual job considerations and many other factors, the friction is inevitable.

However, what is heartening is that this friction is usually a short-term phenomenon.

It never lasts too long.

Invariably individuals do manage to find the right mix of opportunities and compensation eventually.

However, for the small period, when the friction lasts, it can be very challenging.

It results in temporary uncertainty, frustration and decided lack of motivation.

But once it is over, individuals always manage to settle down in their schedule seamlessly.

That is often the best part of the entire deal.

Before You Read the Rest of This Article:
Submit your email to receive our eBook for FREE.
This eBook shows you the shortest way to acheive Financial Freedom:

What causes frictional unemployment?

Though we understand that frictional unemployment is short-term, it is important to understand the cause.

That alone will help chart out solutions.

While there is a school of thought that suggests it is routine, the question is, do we need it?

That is exactly why identifying the right cause is so important.

Only then we can look at creating long-term benefits from the entire deal.

But you can argue that there are many reasons for it.

It is obviously difficult to identify anyone cause or a clear trend.

But here is one primary factor that is common.

It is that of employee dissatisfaction.

Frictional unemployment almost always erupts from a certain level of dissatisfaction.

It can arise from a wide range of reasons and factors.

A closer study of these elements can help look for sustainable changes.

In many ways, these reasons also form the basis of trend changes.

When you look at holistic variations in job search trends, a lot can be attributed to this element.

Therefore, we cannot see frictional employment in isolation.

It is, in many ways, a sum of parts.

In this case, every part needs to be analyzed closely and to the core.

After all, it is only logical for employees to hold on to a job.

It will result in lesser expenses and less energy loss.

Individuals can even gain time from the process.

But despite that, unemployment is continuously on the rise.

That means there is still no clear conclusion to the overall problem as yet.

This is more of a cyclical process, and different geographical locations will have different challenges.

The economic situation also has a strong bearing on the overall game plan.

This is why a systematic study is important for a clearer perspective on the issue.

Personal Causes Leading To Frictional Unemployment

Given the rising aspirational levels, frictional unemployment is an unavoidable reality.

Often people move to a new location for a job and realize that it does not suit them.

You may not move countries.

But even if you shift from one country to another, you may feel a distinct difference.

Many people are not accustomed to this change and do not take to it that easily.

They invariably end up disliking the job.

As a result, they keep moving jobs looking for the right mix of location and profile.

But you may move from one location to another for other reasons too.

For example, many people get married and change location.

In that case, even if their previous job was up to their liking, they change it.

Again they may take up a job in a new location that they may not like.

Now, this is what will trigger temporary frictional unemployment.

Employees always take time adjusting to a new place.

Marriage means they are also adjusting to a new life.

Together that creates a certain conflict of interest.

This may often result in the creation of unhappy job situation.

Needless to mention that this is a key factor that triggers frictional unemployment.

There are many other factors too.

Children’s education, caring for older relatives and personal conflict are key factors.

Almost invariably, people will give priority to these personal equations.

As a result, they then look for employment opportunities that suit these considerations.

It is impossible to find the right mix in one go.

There will be a series of hit and trials before you get to the right mix of opportunities.

Until that time, this is a reality that you will have to deal with.

This transcends any specific industry and genre.

Higher Aspirational Values

Jobs can become unfulfilling because they do not pay enough.

After all, we all want to earn more money.

Just like working hours are rising, so are people’s salary expectations.

Some sectors typically have a higher salary base.

Compared to that, salaries are much lesser in many other sectors.

But even that is not a huge consideration.

The anomalies still exist and often that leads to frictional unemployment.

Almost inevitably people want higher salaries.

They are continuously looking for better opportunities and better jobs.

For example, let’s say there are two new channels, they pay similar amounts and people are happy.

But when suddenly a third player comes into the picture, there is a sudden change in environment.

Let’s say that they offer a flat 10-20% rise in every job opening.

Needless to mention, you will observe switch.

But at the same time, if the quality of job and professionalism is not as per the other two frictional unemployment is almost inevitable.

Individuals are more than keen to keep the salary hike.

But at the same time, they want a better quality job.

Hence a fresh round of search begins and continues for a definite period.

As you can guess, it ends when both these factors are satisfied.

The aspiration value may not be limited to only higher salaries.

It can also be due to better positions or higher ranks.

Individuals do not like going through this period of uncertainty.

If they feel that their growth is stunted in a particular firm, they start looking out.

It is only normal that it will take time to look for the right mix of salary and job satisfaction.

That becomes a key factor dictating frictional unemployment conditions globally.

As a result, individuals need to have the patience to weather these.

 Why Recession Leads to Lesser Frictional Unemployment?

Well, we are assuming individuals do have the luxury of time to keep looking for the ideal jobs.

But that is not the case always.

When the new jobs are rising, the unemployment rate is declining, this is possible.

But you have to understand that frictional unemployment and the economy are closely linked.

The rise in jobs is a function of a growing economy.

So needless to mention that if the economy is not growing, job openings also lessen.

That means the luxury of sufficient jobs may disappear overnight.

As a result, then you will notice that frictional employment too lessens.

People try and adjust to new realities.

Often the premise of quitting one job is that they can easily get another.

Most times people accept the offer letter from one organization before informing the other about quitting.

But that is possible only when the economy is rising, the GDP is growing, and new jobs are created.

However, during a recession, the realities change completely.

Inflation often reverses to deflation, and the overall environment sobers down.

The mad rush for new jobs also lessen to a large extent

People become fearful about newer opportunities.

Almost everyone is keen on holding on to their jobs.

Nobody wants to let go the job in hand in this instance.

Rather they concentrate on how well they perform.

This is to ward off any termination of lay-off that the businesses may plan.

They forget cribbing about lesser pay or job condition.

Instead, the entire energy is focused on creating a great repertoire of achievement.

There is a distinct change in behavior too.

People become more accommodative and try to adjust to whatever is available.

That brings down frictional unemployment to a large extent.

There is a significant drop.

Impact Of Frictional Unemployment On Economy

So that brings us to the point that can we associate frictional unemployment with certain economic circles.

Is it possible that we see more of these when the economy is growing?

Does a rise in inflation levels have a bearing on frictional unemployment?

Well, all of these may vary from culture to culture and geographies.

But the point is that frictional unemployment is a reality only when jobs are available.

If people understand that the availability of new jobs is limited, there is a drop in these numbers.

That means the economic situation surely plays a role in this.

Typically it is not extraordinarily harmful to the economy.

In fact, when you compare other conditions like structural unemployment, this is a far more desirable condition.

In many ways, you can see that it benefits the economy.

It takes the qualified workers to better companies.

Businesses get an opportunity to take in fresh talent.

When there is so much churn at the ground level, people tend to end up with a desirable mix.

That again is great news for the economy.

When people get the kind of job they like, they will work better.

Better work improves efficiency.

That means productivity will also rise to a large extent.

There is a distinct improvement in the job culture in a company also.

Additionally, if everyone remained loyal to their jobs and remained happy, it will become that much difficult to get new talent.

Labor cost may also rise, and it can also impact inflation.

This situation may also result in the rise of the cost-push inflation.

As a result of these situations, it is possible that the economy may experience a slowdown.

But frictional unemployment keeps a check on this complacency considerably.

It makes sure the churn continues.

Examples Of Frictional Unemployment

Let me now explain my points using an example.

A graduate joining the workforce after leaving college is an example of frictional unemployment.

You will see that they will invariably join the first available opportunity.

They are young, enthusiastic and full of life.

As a result, they will grab whatever opportunity they get.

But only after joining they will realize that the working conditions may not be conducive.

Or it may so happen that their peers are getting higher salary than them despite the same qualification.

As a result, a fresh round of search will begin.

Another example is mothers rejoining work after a break.

Many times, women take a break to raise their children.

They then join back when the children have reached a certain age and can care for themselves.

Now at this stage, they may not be inducted back in their previous organization.

Or even if they are, they may not get the position they held.

Moreover, the job realities have undergone a lot of change in the period that they were not working.

This means that the individuals have to adjust to new routine that they are not used to.

That means yet again you see frictional unemployment.

This will only settle down when they get a proper mix of opportunities.

Geographical changes is also a great trigger for frictional unemployment.

Let’s say I am used to Aspen winters, and I have to relocate to Arizona.

It goes without saying that I am not going to like it immediately.

I will be constantly on the lookout.

If I get an opportunity anywhere in Colorado, I will be more than keen to move back there.

The idea is we all like to be in places we are comfortable in.

Calculating Frictional Unemployment

Just like the unemployment rate, it is important to calculate frictional unemployment too.

Overall, many factors can contribute to unemployment.

Some are good, and some are not so good.

For example, if there is structural unemployment, it may not be suitable for the economy.

There are concerns about a slowdown and business growth.

On the contrary frictional unemployment invariably ushers in fresh talent.

It results in a healthy churn of talent across the industry

That will mean that the economy gets the fresh impetus for renewed growth and improvement.

As a result, a careful calculation of these numbers is important.

It is normally calculated by dividing the people looking for new jobs by the total labor force.

In this, let me clarify that there are three types of workers looking for new jobs.

Those who have left an existing job

Those who are joining after a sabbatical

Also, those who are joining the workforce for the first time.

Typically frictional unemployment can result from any of these segments.

On an average, a worker actively looking for jobs is someone who has been on the lookout for at least 4 weeks.

This means that they are seriously looking for better opportunities.

Conclusion

So the question arises, is there a way to reduce frictional unemployment?

Well, you have a school of experts who may see it as a healthy development.

But just like any development, too much of it cannot be good.

You can tackle frictional development in many ways.

Better information dissemination is perhaps the most sustainable way.

It will give people access to better jobs that match their qualification.

So even the job hiring firms to rework their algorithms better.

That will ensure a higher number of proper matches.

In many ways, streamlining the job search methods may cut down frictional unemployment.

But monetary policies and economic conditions will always have a bearing on frictional unemployment.

Join Our 24,000+ Loyal Followers Now & Receive Our E-Book For Free!
Download Our E-book For FREE and Don't Miss Our New Articles!
Enter your email address and check your inbox now:

Article by

+ Click Here to learn who we are and why this site was created.

+ Click Here to receive our eBook for free.
I want to...

Leave a Reply :

Your email address will not be published. Required fields are marked *

*