Frictional Unemployment: What It Is, Why It Happens, and What to Do

An economy typically always has some level of unemployment thanks to changing labor market dynamics, economic evolution, and other factors. Frictional unemployment is the more temporary form of unemployment, representing the period when people are actively searching for new employment opportunities that better match their skills, preferences, and salary requirements.

Learn more about frictional unemployment, its key features, and how it can affect you. One way to navigate frictional unemployment is to keep expanding your skill set to find roles you're more suited for. Keep building your skills in new and in-demand areas with a Coursera Plus subscription.

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What is frictional unemployment?

Frictional unemployment refers to the short-term period of unemployment that can occur when someone leaves their current job in search of a better fit. It typically applies to the purposeful act of changing your career, such as relocating or quitting to find a role more aligned with a larger career goal.

A prime example of frictional unemployment occurred in early 2021, with the phenomenon that came to be known as "the Great Resignation." At the time, workers began quitting en masse, citing various reasons, including low pay, lack of advancement, and little flexibility [1].

The “friction” in the term stems from the inevitable period during which individuals looking for work must wait for employers to create jobs and hire them. People looking for their first job post-graduation also count as frictionally unemployed.

3 key features of frictional unemployment

Unemployment has negative connotations, especially if it's something you experience unwillingly. But frictional unemployment isn’t necessarily bad. After all, it may take some time to find the right opportunity for your skill set.

The following features of frictional unemployment can help you better understand why this phenomenon is considered a natural part of a healthy economy.

1. It's natural.

It takes time to find a job. To identify a good fit for your skills, experience, and preferences, you’ll need time to research potential employers, submit applications, attend interviews, negotiate salary and benefits, and complete other steps in the hiring process.

2. It's short-lived.

You might view frictional unemployment as a transaction cost of finding the right job opening for your skills and experience. Typically, workers who experience frictional unemployment have in-demand skills and eventually find new employment. After all, in a well-functioning labor market, employers regularly create and fill new jobs, and employees consistently enter and exit the workforce.

3. It’s often voluntary.

Frictional unemployment is made up of people who decide to leave their jobs. When someone voluntarily leaves their job to look for work, they are typically optimistic about the economy and their prospects. 

Frictional unemployment also reflects workers entering the job market for the first time, such as recent graduates and individuals returning to work after a period of absence. Those experiencing frictional unemployment often have a level of control over their job search and can choose whether to accept a job offer suitable for their skills, experience, and preferences.

Causes of frictional unemployment

Fictional unemployment has many causes, which often overlap with one another. To better understand this type of unemployment, it may help to consider a hypothetical frictional unemployment example. Some of the factors that can contribute to a worker experiencing frictional unemployment include:

• Changing jobs because your current role doesn’t satisfy you

• Graduating from school and seeking your first job.  

• Relocating to a new area, such as moving closer to a partner or family member.

• Transitioning to a new field and taking time off to first learn new skills.

• Turning down job opportunities to await a better offer or a position. 

Outside of these labor-driven reasons, there's also one that applies to employers. Frictional unemployment can occur when employers take time to decide which applicant to hire.

Frictional unemployment vs. other types of unemployment

Frictional unemployment represents one type of unemployment the Bureau of Labor Statistics measures. As we've mentioned, it's of short-term duration compared to the other common types of unemployment, such as structural, cyclical, and seasonal.

• Structural unemployment occurs when the skills and qualifications of available workers don’t match those of available jobs. It is caused by changes in technology, globalization, or other structural factors that affect the economy and lasts longer than frictional unemployment.

• Cyclical unemployment occurs as a result of fluctuations in the business cycle. It occurs when companies leave open positions unfilled or let employees go. We experienced cyclical unemployment during the financial crisis of 2008 and the COVID-19 pandemic.

• Seasonal unemployment reflects workers who only have jobs during certain seasons, such as fruit pickers or water park workers. When the season ends, workers may become unemployed until the next season begins.

Benefits and challenges of frictional unemployment 

While frictional unemployment tends to indicate employee optimism about finding a better opportunity more aligned with their goals or skills, the impacts can vary. Consider these benefits and disadvantages.

Benefits

Frictional unemployment occurs during phases of economic growth as people leave their current jobs in search of better, high-paying jobs.

Frictional unemployment also represents people seeking more meaningful work. When professionals know they have options, they'll confidently leave companies to find a better fit. This differs from a recession, where workers are less likely to leave their current role because they are less likely to find a comparable opportunity.

When employers accept roles that match their passion and sense of purpose, employers benefit from greater productivity, improved engagement, and increased employee retention. Employers looking to avoid losses to frictional unemployment may increase job flexibility, offer more development and training, and provide relocation assistance.

Challenges

Periods of frictional unemployment can be challenging for individuals. Looking for work is often stressful, even if you consciously take your time to find the best fit. It's also worth noting that competition increases when more people voluntarily look for work. 

For employers, frictional unemployment can make hiring more competitive. The potential hires can more actively compare job offers, expecting more attractive salary packages or other workplace benefits. 

Employers can also have more difficulty keeping talent. With turnover costing employers in terms of hiring and training a new employee and lost productivity during the search, frictional unemployment forces employers to work harder to engage employees and meet their needs.

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