A Guide to Frictional Unemployment for Employers and Employees

Frictional unemployment is a voluntary type of unemployment that occurs as workers shift around in the job market during economic health. It represents the time they spend between their old position searching for their current role. It’s not an indicator of economic health; instead, it typically happens during a stable economy since workers are less likely to shift their careers during a recession when job openings are low. 

Discover frictional unemployment, its key features, some of the leading causes with examples, its differences from other types of unemployment, and how it affects employees and employers.

What is frictional unemployment?

Frictional unemployment refers to the time an individual spends between jobs. During this temporary unemployment, workers search for new employment. Immediately getting that next job may take time to happen. The “friction” comes from the inevitable periods during which individuals looking for work must wait for employers to create jobs and choose to hire them. People looking for that first job post-graduation also count as frictionally unemployed. Another example of frictional unemployment was during the COVID-19 pandemic when people who didn’t want to return to the office quit instead of looking for new roles that would allow them to work from home. 

Key features of frictional unemployment

Unemployment has negative connotations, but frictional unemployment isn’t necessarily bad. After all, for employees and employers to succeed, you can expect that matching the right person to the right job will take some time. The following features of frictional unemployment can help you better understand why this phenomenon is a standard part of the market economy.

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.

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.

It’s sometimes voluntary.

Frictional unemployment comprises people who decide to leave their jobs and those told to leave. 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.

Main causes of frictional unemployment (with examples)

Fictional unemployment has many causes, often overlapping 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 

• Starting in the job market 

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

• Transitioning to a new field, taking time off to learn new skills before finding a new career.

• Need help accessing accurate and up-to-date information about job openings.

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

• The time employers take to decide which applicant to hire also contributes to frictional unemployment.

How is frictional unemployment different from other types of unemployment?

Frictional unemployment represents one type of unemployment the Bureau of Labor Statistics measures. It is a temporary, short-term duration of unemployment 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.

Read more: Cyclical Unemployment: How to Stay Relevant During an Economic Downturn

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.

Pros and cons of frictional unemployment 

While frictional unemployment can indicate employee optimism, the impacts vary. Consider these benefits and disadvantages.

Pros

Frictional unemployment occurs during phases of economic growth as people leave their current jobs in search of better, high-paying jobs. Frictional unemployment can also represent people seeking more meaningful work. People know they have options and confidently leave companies to find a better fit, unlike in a recession where workers are less likely to leave their current role. 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.

Cons

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. At the same time, 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.

Read more: Your 2024 Guide to Employee Retention

Next steps

Frictional unemployment occurs across nearly every industry, often in healthy economies, as workers look for the most satisfying, highest-paying jobs on the market. It also happens with new college graduates and workers who relocate. Job training programs and career counseling can help reduce frictional unemployment duration. 

You can also develop the skills to find new employment opportunities more quickly on Coursera. Brush up on your interview skills by learning Advanced Interview Techniques with the University of Maryland. Employers can better understand how to overcome hiring barriers with Coursera’s research report on Turning the Great Attrition into the Great Attraction.