What is Frictional Unemployment?

In a market economy, some companies are always going broke for a variety of reasons: old technology; poor management; good management that happened to make bad decisions; shifts in tastes of consumers so that less of the firm’s product is desired; a large customer who went broke; or tough domestic or foreign competitors. Conversely, other companies will be doing very well for just the opposite reasons and looking to hire more employees. In a perfect world, all of those who lost jobs would immediately find new ones. However, in the real world, even if the number of job seekers is equal to the number of job vacancies, it takes time to find out about new jobs, to interview and figure out if the new job is a good match, or perhaps to sell a house and buy another in proximity to a new job. Economists call the unemployment that occurs in the meantime, as workers move between jobs, frictional unemployment. 

Frictional unemployment is not inherently a bad thing. It takes time on part of both the employer and the individual to match those looking for employment with the correct job openings. For individuals and companies to be successful and productive, you want people to find the job for which they are best suited, not just the first job offered.

Of course, it would be preferable if people who were losing jobs could immediately and easily move into newly created jobs, but in the real world, that is not possible. 

The level of frictional unemployment will depend on how easy it is for workers to learn about alternative jobs, which may reflect the ease of communications about job prospects in the economy. The extent of frictional unemployment will also depend to some extent on how willing people are to move to new areas to find jobs—which in turn may depend on history and culture.

Frictional unemployment and the natural rate of unemployment also seem to depend on the age distribution of the population.

Related Topics

• What is the US Labor Force?
• Out of the Labor Force
• Labor Force Participation Rate
• Establishment Payroll Survey
• Bureau of Labor Statistics 
• Unemployment 
• Underemployed
• Full Employment Equilibrium
• Okun's Law
•  Issues with Measuring Unemployment

• Sticky Wage Theory (Economics)
• Implicit Contract Theory of Wages
•  Efficient Wage Theory
• Adverse Selection of Wage Cuts Argument
• The Insider-Outsider Model
• Relative Wage Coordination Argument
• Natural Rate of Unemployment
• Frictional Unemployment
• Structural Unemployment
• Labor Productivity - Explained
• Okun's Law
• How does U.S. unemployment insurance work?
• National Average Wage Index
• Job Openings and Labor Turnover Survey
• Labor Surplus Area - Explained
• Lump of Labor Fallacy - Explained
• Bureau of Labor Statistics 
• ADP National Employment Survey
• Labor Theory of Value - Explained
• Wage Elasticity of Labor Supply