What are some examples of frictional unemployment

Frictional and Structural Unemployment: What's the Difference?

Frictional and structural unemployment are two different types of unemployment that occur in an economy. Smooth unemployment is not a direct consequence of economic factors and occurs when workers look for jobs. Conversely, structural unemployment is caused by changes in the economy that make it difficult for workers to find employment.

The central theses

  • Smooth unemployment affects people who switch between jobs. it has nothing to do with the business cycle and is voluntary.
  • Structural unemployment is a direct consequence of changes in the economy, including technological changes or declines in an industry.
  • Frictional unemployment is usually a temporary phenomenon, while structural unemployment can last for years.
  • Structural unemployment is very worrying for economists, while friction unemployment is seen as inevitable and not included in the unemployment rate.

Smooth unemployment

Smooth unemployment is the result of workers looking for new employment or moving from their old job to a new one. It can also be referred to as "natural unemployment" as it is not directly related to factors that lead to below-average economic performance.

Smooth unemployment is voluntary and a direct consequence of temporary job transitions. This includes new people entering the world of work, anyone moving to another city to find work, and people quitting their job to find other work. Workers can also choose to remain unemployed instead of taking the first job on offer. Hence, friction unemployment is usually present in an economic system as some people are always looking for new jobs.

Recent college graduates looking for work may not expect to find work within one year of graduation due to a lack of experience. However, offers may be received for jobs that are not in your chosen area. If they refuse these offers for this reason, they will be seamlessly unemployed. Employers can also cause frictional unemployment. For example, employers may feel that there are not enough qualified candidates for certain positions and so will not try to fill them.

Many economists are still not worried about frictional unemployment because there is no way to prevent it. They recognize that frictional unemployment is only temporary and does not put a strain on government resources such as social assistance and unemployment benefits. It is actually a good sign for the economy as it shows that people are looking for higher paying, better quality jobs. Since frictional unemployment is not directly related to the economy, economists tend to take it into account when calculating the unemployment rate.

Cyclical unemployment is a consequence of the business cycle. Unemployment rises during the recession and falls with economic growth.

Structural unemployment

Structural unemployment is a type of long-term unemployment caused by changes in the economy. It occurs when there is an oversupply of jobs and people willing to work, but those people are not qualified to do it.

One of the reasons for structural unemployment is technological advances, which can cause some types of skilled workers to become obsolete. For example, suppose a data analyst at an investment bank has been in the field for more than 20 years, but has never kept up with advances in technology and never learned to code. The job of the analyst is easily programmable, and these programs can analyze big data more quickly. Because the employee is not qualified for other data analyst jobs that require extensive programming skills, there is structural unemployment.

Structural unemployment can also be caused by a decline in an industry. Suppose crude oil prices fell over the past year. As a result, shale oil drilling companies are also in decline and have lost money on their overall investments due to the weakened oil industry. To combat the loss, the shale oil drilling companies are having to lay off many of their workers. The skilled workers in the drilling field do not have the skills to perform other tasks in emerging industries and markets. Consequently, the decline in this industry can lead to structural unemployment.

Since structural unemployment is a direct consequence of the business cycle, economists and analysts take this very seriously. If left unaddressed, this type of unemployment can last for years or even decades and increase a country's unemployment rate.