Frictional Unemployment

Idea

Frictional unemployment is the short-term unemployment of workers between jobs — those who are searching for a suitable post and have not yet found one. It is regarded as temporary and is not usually a cause for concern.

Mechanism

The labour market lacks perfect information: job-seekers do not know of every vacancy, and employers do not know of every available worker. Matching the two therefore takes time, and during that search the worker is frictionally unemployed. A recent graduate typically spends some weeks or months on interviews and applications before securing a post; that interval is frictional unemployment.

Considerations

Two factors lengthen the search:

• Lack of information. The time lag while workers and employers gather information about one another. A worker who has resigned to look for something better may take months to survey what is available and judge which post suits them.

• Expectations mismatch. Job-seekers and employers hold expectations about pay, hours and prospects; where these do not align, the job-seeker declines early offers and stays unemployed until a suitable match appears.

Because the cause is search and information, the remedies improve information and sharpen incentives — levelling job information through job-matching websites and job fairs, and moderating expectations (for example, by trimming over-generous unemployment benefits so the opportunity cost of remaining unemployed rises). The policy detail belongs to the macroeconomic-policy topic.