Put simply, frictional unemployment is what happens when workers leave their jobs to find a better opportunity — without having anything lined up. More often than not, the employee’s departure is voluntary but it can also occur post-layoff.
Is Frictional Unemployment Bad for the Economy?
In short: no. It’s also not necessarily bad for workers.
“Frictional unemployment isn’t harmful to an economy. Other types of unemployment, such as cyclical and structural unemployment, are worse,” writes Kimberly Amadeo at The Balance. “An increase in frictional unemployment means more workers are moving toward better positions.”
The Economist explains:
Economists often refer to three types of unemployment: “frictional”, “cyclical” and “structural”. Cold-hearted economists are not too worried about the first two, which refer to people moving between jobs and those temporarily laid-off during a downturn. The third kind refers to people who are excluded—perhaps permanently—from the labour market. In econo-speak, structural unemployment refers to the mismatch between the number of people looking for jobs and the number of jobs available. It is bad news both for those who suffer from it and for the society in which they live.
The Role of Employers
Employers are also responsible for the frictional unemployment rate — most notably when they stall to fill a position because they perceive there to be a lack of qualified applicants. Too often, there’s a gap between the roles that need filling and the talent that can fill them. The problem might not be lack of skilled applicants, but inefficient job listings, flawed hiring systems, and the inability to juggle hiring with doing business. Operationally speaking, if there’s a problem that needs addressing, or billable work to be done, hiring is almost always going to fall by the wayside — thus perpetuating frictional unemployment.
Again, this isn’t the worst thing, but only up to a certain point. Companies will often lean on the rationale that they’re “taking their time to find the right fit.” For applicants weighing options and holding out for the highest bid, it’s easy to play the same card and let frictional unemployment stretch out. But with the waiting game comes a host of other issues: scheduling conflicts, new offers, hiring freezes, and loss of interest on both sides. It’s at this point — a very slippery slope, indeed — when frictional unemployment starts to give way to full-blown, run-of-the-mill, un-glamorous joblessness.
The element of “friction” in this equation refers to the time, effort, and expense the worker must sustain in order to find a better position. A certain amount of friction is to be expected during any professional transition, be it two weeks or two months — especially in larger cities where the talent pool is more saturated and the competition more fierce. Add in new graduates’ lack of experience in seeking jobs, the hiring cycles of certain companies, seasonal patterns of hiring, lengthy interview processes, and the added friction of negotiation and notice, and it begins to sound relatively impossible to move seamlessly into a new role.
For choosy applicants who jump ship without a backup plan and embrace the waiting game, it’s easier to sustain the cost if you can envision the payoff in the distance. And while a certain amount of frictional employment might not be the worst thing for the workforce (that is to say, if we’re all actually looking for the best fit), many economists criticize the way in which frictional unemployment lets good talent slip through the cracks.
Tell Us What You Think
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