Frictional unemployment is the term used to describe people who are unemployed but in between jobs.
The Key Takeaways
- Frictional unemployment occurs when people are between jobs. This is true whether or not they left their job voluntarily.
- Frictional unemployment occurs naturally in an economy. It will even be present in a growing, healthy economy.
- The BLS measures three types of unemployment. Frictional unemployment is the one that lasts the least amount of time.
Definition and examples of Frictional unemployment
When people are between jobs, they’re considered to be in a state of frictional unemployment. Sometimes, when people change jobs, they may be unemployed for a short time.
There will always frictional unemployment because there are always workers looking for a new job. The two types of natural unemployment are structural unemployed and frictional unemployment. This “natural” form of unemployment is calculated by the rate of natural unemployment. 1
The U.S. Bureau of Labor Statistics uses data from a survey of approximately 60,000 US households to estimate unemployment rates. Unemployment is defined as a person who has no job, and actively seeks one. They are not included in the labor force if they aren’t actively looking for work.
A person who is frictionally unemployed must be in between jobs, and not have lost a job due to structural or cyclical factors. A worker who quits a job to find another or someone who just started working after graduating would be considered frictionally employed.
Note:
The BLS also measures cyclical and structural unemployment.
What is Frictional Unemployment?
If a person leaves their job voluntarily or is fired, they are considered to be frictionally unemployed. The frictionally unemployed include new entrants to the workforce that are looking for their first job.
Frictional unemployment can be considered less serious than other forms of unemployment, because it is a reflection of the time that it takes workers to find a job that suits them. Workers moving into the jobs that they are most productive is a sign of a healthy economic system.
Frictional unemployment is the shortest-term of the three types of unemployment that are measured by the BLS. Structural unemployment, when someone loses a job because of a mismatch in skill, is much more prolonged, as they will need to learn new skills to find a job. Cyclical unemployment can also create additional unemployment. The cyclical employment is not a natural phenomenon, but is a result of recessions.
What is the lowest level of unemployment that the U.S. economy can sustain?
Natural rate of unemployment is the measure of unemployment outside of business cycles recessions. This includes frictional, structural and surplus unemployment. As both structural and frictional unemployment are a natural part of a market, how low can the U.S. economic system go in terms of its unemployment rate?
Federal Reserve says that “the lowest level unemployment an economy can sustain will change over time, as the job market changes.” Even in good times, an economy that is dynamic and healthy will experience some unemployment, as workers change jobs, or as new workers enter into the labor market. 3
The graph below, from the Federal Reserve Bank of St. Louis shows that the natural rate of US unemployment (also known as the noncyclical unemployment rate) has been fluctuating since the late 1960s. It reached its highest level of 6.2% in 1978, the year that was between 1952 and 2012. It reached a low of 4,4% in 2022. 4 The graph shows that, even when the unemployment rate is low overall, there will still be some unemployment because of frictional and structural unemployment. Workers will continue to change jobs and new workers are likely to enter the labor force.
