Frictional Unemployment

11 Key excerpts on "Frictional Unemployment"

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  eBook - PDF

  Principles of Macroeconomics 2e

  • Steven A. Greenlaw, Timothy Taylor, David Shapiro(Authors)
  • 2017(Publication Date)
  • Openstax

    (Publisher)

  Frictional Unemployment In a market economy, some companies are always going broke for a variety of reasons: old technology; poor management; good management that happened to make bad decisions; shifts in tastes of consumers so that less of the firm’s product is desired; a large customer who went broke; or tough domestic or foreign competitors. Conversely, other companies will be doing very well for just the opposite reasons and looking to hire more employees. In a perfect world, all of those who lost jobs would immediately find new ones. However, in the real world, even if the number of job seekers is equal to the number of job vacancies, it takes time to find out about new jobs, to interview and figure out if the new job is a good match, or perhaps to sell a house and buy another in proximity to a new job. Economists call the unemployment that occurs in the meantime, as workers move between jobs, Frictional Unemployment. Frictional Unemployment is not inherently a bad thing. It takes time on part of both the employer and the individual to match those looking for employment with the correct job openings. For individuals and companies to be successful and productive, you want people to find the job for which they are best suited, not just the first job offered. In the mid-2000s, before the 2008–2009 recession, it was true that about 7% of U.S. workers saw their jobs disappear in any three-month period. However, in periods of economic growth, these destroyed jobs are counterbalanced for the economy as a whole by a larger number of jobs created. In 2005, for example, there were typically about 7.5 million unemployed people at any given time in the U.S. economy. Even though about two-thirds of those unemployed people found a job in 14 weeks or fewer, the unemployment rate did not change much during the year, because those who found new jobs were largely offset by others who lost jobs.

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  Textbook of Macroeconomics

  • (Author)
  • 2014(Publication Date)
  • White Word Publications

    (Publisher)

  Seasonal unemployment may be seen as a kind of structural unemployment, since it is a type of unemployment that is linked to certain kinds of jobs (construction work, migratory farm work). The most-cited official unemployment measures erase this kind of unemployment from the statistics using seasonal adjustment techniques. ____________________ WORLD TECHNOLOGIES ____________________ Frictional Unemployment Beveridge curve of 2004 job vacancy and unemployment rate from the United States Bureau of Labour Statistics Frictional Unemployment is the time period between jobs when a worker is searching for, or transitioning from one job to another. It is sometimes called search unemployment and can be voluntary based on the circumstances of the unemployed individual. Frictional Unemployment is always present in an economy, so the level of involuntary unemp-loyment is properly the unemployment rate minus the rate of Frictional Unemployment, which means that increases or decreases in unemployment are normally under-represen-ted in the simple statistics. Frictional Unemployment exists because both jobs and workers are heterogeneous, and a mismatch can result between the characteristics of supply and demand. Such a mismatch can be related to skills, payment, work-time, location, seasonal industries, attitude, taste, and a multitude of other factors. New entrants (such as graduating students) and re-entrants (such as former homemakers) can also suffer a spell of Frictional Unemployment. Workers as well as employers accept a certain level of imperfection, risk or compromise, but usually not right away; they will invest some time and effort to find a better match. This is in fact beneficial to the economy since it results in a better allocation of resources. However, if the search takes too long and mismatches are too frequent, the economy suffers, since some work will not get done. Therefore, governments will seek ways to

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  Labour Economics

  Unlocking the Secrets of Labour Economics, Navigating Work, Wages, and Economic Impact

  • Fouad Sabry(Author)
  • 2023(Publication Date)
  • One Billion Knowledgeable

    (Publisher)

  Seasonal unemployment may be considered a form of structural unemployment because it is associated with particular types of employment (construction and migratory farm work). Using "seasonal adjustment" techniques, the most-cited official measures of unemployment omit this type of unemployment from the statistics. This causes substantial and lasting structural unemployment.

  The Beveridge curve of 2004 job vacancy and unemployment rate (from the US Bureau of Labor Statistics)

  Frictional Unemployment is the period of time between jobs during which a worker searches for or transitions to a new position. It is sometimes referred to as search unemployment and, depending on the circumstances of the unemployed individual, may be voluntary. Because jobs and workers are heterogeneous, a mismatch between the characteristics of supply and demand can result in Frictional Unemployment. This mismatch can be caused by a variety of factors, including skills, compensation, work hours, location, seasonal industries, attitude, and taste. New entrants (such as recent graduates) and re-entrants (such as former housewives) can also experience Frictional Unemployment.

  Workers and employers generally accept a degree of imperfection, risk, or compromise, but not immediately. They will expend some time and effort to find a more suitable companion. This is beneficial to the economy because it leads to a more efficient allocation of resources. However, if the search takes too long and there are too many mismatches, the economy suffers because not enough work is completed. Consequently, governments will seek multiple means to reduce unnecessary Frictional Unemployment, including the provision of education, advice, training, and aid such as daycare centers.

  The frictions in the labor market are sometimes graphically represented by a Beveridge curve, a concave, downward-sloping curve that illustrates a correlation between the unemployment rate and the vacancy rate. Variations along the curve are caused by shifts in the labor supply or demand. A rise or fall in labor market frictions will shift the curve to the right or left, respectively.

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  Economics and its Stories

  • Amal Sanyal(Author)
  • 2017(Publication Date)
  • Routledge

    (Publisher)

  Some are not interested in a job at that time. We can call them unemployed by choice. This sort of unemployment is more a feature of richer countries where people want to take time off from work once in a while. Second, there are those who have left a job and are looking for another one. They may want a change of location or are looking to improve their career and so on. Their unemployment is called frictional. Frictional Unemployment, like mechanical friction, cannot be eliminated but can be reduced. Better job search mechanisms and skill matching by job exchanges can cut down transit time between jobs and hence Frictional Unemployment. However, some among the frictionally unemployed workers face a challenge. They are those who have lost jobs because of structural changes in the economy. Structural changes occur as some industries recede or die out and new ones come up. As a result, workers in the declining industries lose jobs and look for employment in the emerging industries. This type of unemployment, called structural unemployment, is tougher than other forms of Frictional Unemployment. It requires re-orientation of workers in many ways such as learning new skills and migrating to new industrial centres. It may disrupt the worker’s family and life cycle. There are two other components of unemployment. The first is seasonal fluctuation. In countries with a large agricultural workforce there is huge variation of unemployment reflecting the seasonality of principal crops. The second is a component that moves up and down in tandem with the downs and ups of business called business cycles. Seasonal factors and business cycles contribute large variation to unemployment. Statistical methods are used to separate out the various components from the data on total unemployment. The part that fluctuates within the year with temporal regularity is attributed to seasonal influence. Seasonal influence need not be from agriculture alone

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  Soviet Labour And The Ethic Of Communism

  Full Employment And The Labour Process In The Ussr

  • David Lane(Author)
  • 2019(Publication Date)
  • Taylor & Francis

    (Publisher)

  1

  Figure 4.1: Frictional Unemployment

  In market economies, it is usually reckoned that even with full employment, 2-3 per cent of the workforce will remain 'frictionally' unemployed. 'Frictional' unemployment is not usually counted in market economies as giving a person an unemployed status. The length of the period recognized as being 'between jobs', or actively seeking work, makes a great deal of difference to unemployment statistics. People unsuccessfully seeking work for less than four weeks are usually excluded, and in some countries, such as Sweden, the qualifying period is as much as 60 days.2

  Measurement of Turnover

  Frictional Unemployment is the major source on which the rate of unemployment in the Soviet Union has been estimated by western experts. Such estimates are based on extrapolation from data on turnover (tekuchest '). These include people who voluntarily leave or are dismissed, but exclude those who retire, join the armed forces, are transferred to other enterprises or participate in 'organized transfers' (orgnabor ). On such a basis, Mesa-Lago and Peter Wiles have attempted to calculate total Soviet unemployment rates forthe 1950s and 1960s. Mesa-Lago3 calculates that in 1960, 20 per cent of the workforce lost an average of 27 work days as a result of changing jobs: this gives a rate of 'aggregate unemployment' at 3.3 per cent. As Mesa-Lago points out, however, the statistical basis for these calculations has some flaws. Turnover may not have involved any time-lags in some cases and the average days lost may not be representative of the whole: turnover varies enormously between areas4 (see below). Nevertheless, Mesa-Lago concludes that a rate of 2-3 per cent is 'roughly indicative of the importance of Frictional Unemployment in the USSR due to job shifts among industrial workers'.5 Paul R. Gregory, on the basis of interviews conducted in the early 1980s with 2,800 Soviet emigrés living in the United States, estimates that the level of unemployment is 2½ to 3 per cent.6 Peter Wiles, basing his estimate on a 30 calendar day average idleness for a jobchanger in Krasnoyarsk city, calculates a 1.3 per cent Frictional Unemployment rate for the USSR.7 In the Soviet journal Trud in 1974, it was reported that in the RSFSR 3.5 million people in industry and building changed jobs: it was further calculated that this represented a loss of 400,000 person work years. If one expresses this as a proportion of total employment in industry and building one may calculate an annual rate of frictional employment of 1.5 per cent.8 In the Belorussian Republic in 1976/77, it has been calculated that the equivalent of 10-11,000 people were lost to production in industry and building as a result of turnover.9 This represents a loss of under one per cent per year.10

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  eBook - PDF

  Principles of Macroeconomics 3e

  • David Shapiro, Daniel MacDonald, Steven A. Greenlaw(Authors)
  • 2022(Publication Date)
  • Openstax

    (Publisher)

  Of course, it would be preferable if people who were losing jobs could immediately and easily move into newly created jobs, but in the real world, that is not possible. Someone who is laid off by a textile mill in South Carolina cannot turn around and immediately start working for a textile mill in California. Instead, the adjustment process happens in ripples. Some people find new jobs near their old ones, while others find that they must move to new locations. Some people can do a very similar job with a different company, while others must start new career paths. Some people may be near retirement and decide to look only for part-time work, while others want an employer that offers a long-term career path. The Frictional Unemployment that results from people moving between jobs in a dynamic economy may account for one to two percentage points of total unemployment. The level of Frictional Unemployment will depend on how easy it is for workers to learn about alternative jobs, which may reflect the ease of communications about job prospects in the economy. The extent of Frictional Unemployment will also depend to some extent on how willing people are to move to new areas to find jobs—which in turn may depend on history and culture. Frictional Unemployment and the natural rate of unemployment also seem to depend on the age distribution of the population. Figure 8.4 (b) showed that unemployment rates are typically lower for people between 25–54 years of age or aged 55 and over than they are for those who are younger. “Prime-age workers,” as those in the 25–54 age bracket are sometimes called, are typically at a place in their lives when they want to have a job and income arriving at all times. In addition, older workers who lose jobs may prefer to opt for retirement.

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  Modern Labor Economics

  Theory and Public Policy - International Student Edition

  • Ronald G. Ehrenberg, Robert S. Smith, Kevin F. Hallock(Authors)
  • 2021(Publication Date)
  • Taylor & Francis

    (Publisher)

  One reason why we might observe a negatively sloped wage curve can be found in the efficiency-wage explanation of structural unemployment reviewed earlier. Suppose, for example, that one cause of long-term unemployment is the widespread payment of above-market wages by employers in an effort to reduce shirking among their employees. In regions where this and other causes happen to create higher levels of unemployment, the efficiency-wage premiums needed to reduce shirking would be lower—which would cause the negative association that we observe between regional unemployment rates and wage levels.

  Demand-Deficient (Cyclical) Unemployment

  Frictional Unemployment arises because labor markets are dynamic and information flows are imperfect; structural unemployment arises because of long-lasting imbalances in demand and supply. Demand-deficient unemployment is associated with fluctuations in business activity (the “business cycle”), and it occurs when a decline in aggregate demand in the output market causes the aggregate demand for labor to decline in the face of downward inflexibility in real wages. Such a decline took place during the Great Recession of 2007 to 2009, during which time the unemployment rate in the United States rose from 4.4 percent in the spring of 2007 to 10 percent in the fall of 2009.35 Another sudden increase in unemployment took place from February to April in 2020, although the sudden rise in the U.S. unemployment rate from 3.5 percent to 14.7 percent was rooted in the abrupt shutdown of businesses and travel to reduce the spread of COVID-19—not the business cycle.

  Returning to our simple demand-and-supply model of Figure 14.2 , suppose that a temporary decline in aggregate demand leads to a shift in the labor demand curve to D1 . If real wages are inflexible downward, employment will fall to E1 , and E0 −E1 additional workers will become unemployed. This employment decline occurs when firms lay off workers (increasing Peu )36 and reduce the rate at which they replace those who quit or retire (decreasing Pne and Pue

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  eBook - ePub

  Modern Labor Economics

  Theory and Public Policy (International Student Edition)

  • Ronald G. Ehrenberg, Robert S. Smith(Authors)
  • 2017(Publication Date)
  • Routledge

    (Publisher)

  Another defines full employment as the rate of unemployment at which job vacancies equal the number of unemployed workers, and yet another defines it as the level of unemployment at which any increases in aggregate demand will cause no further reductions in unemployment. A variant of the latter defines the natural rate as the unemployment rate at which all unemployment is voluntary (frictional and perhaps seasonal). A final definition of the natural rate is that rate at which the level of unemployment is unchanging and both the flows into unemployment and the duration of unemployment are normal. 45 All the various earlier definitions try to define in a specific way a more general concept of full employment as the rate that prevails in “normal” times. If we assume that frictional and seasonal unemployment exist even in labor markets characterized by equilibrium (that is, markets having neither excess demand nor excess supply), it is clear that the natural rate of unemployment is affected by such factors as voluntary turnover rates among employed workers, movements in and out of the labor force, and the length of time it takes for the unemployed to find acceptable jobs. These factors vary widely across demographic groups, so the natural rate during any period is strongly influenced by the demographic composition of the labor force. Unemployment and Demographic Characteristics Table 14.4 presents data on actual unemployment rates for various age/ race/gender/ethnic groups in 2015, a year in which the overall unemployment was a moderate 5.3 percent

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  On Unemployment

  A Micro-Theory of Economic Justice: Volume 1

  • Mark R. Reiff(Author)
  • 2015(Publication Date)
  • Palgrave Macmillan

    (Publisher)

  PART I Theory CHAPTER 1 The Various Forms of Unemployment 1.1 What Is Full Employment? There are many different senses in which the terms “employment” and “unem- ployment” can be used. It is important to recognize that full employment, which is what I shall be arguing justice requires here, does not mean an unemployment rate of zero. The labor market is dynamic, not static, so the rate of people enter- ing and leaving the employment pool will usually not sum to zero—there will always be people looking for different jobs or better ones; some skills and the people who have them will become less marketable as a result of technological or cultural change while other skills and the people who have them will become more marketable. Every economy must leave room for such shifts in the demo- graphics of employment to occur if it is to function smoothly and be able to reallocate labor efficiently and as needed by the development of new technolo- gies. Efforts to reduce unemployment will accordingly always aim to allow some Frictional Unemployment to remain. 1 What then do we mean by full employment? According to Keynes, full employment is reached when a further increase in effective demand produces no further increase in output or employment and entirely translates itself into an increase in money prices (in other words, inflation). 2 Applying this test, the frictional rate is probably somewhere between 2 and 3 percent, 3 although it may be impossible to establish the precise number with any acceptable degree of accuracy—indeed, this number may vary slightly from time to time or country to country or even occupation to occupation depending on conditions. 4 There are also other indicators we would want to look at to determine whether and when we were at full employment. The ratio of unemployed to job vacancies would be one, and the closer we get to equality between these numbers the more likely we would be at full employment.

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  Introductory Macroeconomics

  • Michael Veseth(Author)
  • 2014(Publication Date)
  • Academic Press

    (Publisher)

  Supply and demand search for equilibrium in the labor market, as Figure 3-5 shows. An equilibrium wage rate does not guarantee full employment, however. At equilibrium the number of people seeking work and the number of jobs available are equal. But the frictional problems of information, mobility, and discrimination, among others, keep some jobs unfilled and willing workers unemployed. Causes of Unemployment The labor market shows why unemployment increases. The first and most obvious cause of unemployment is a fall in labor demand. The demand for labor might fall in a particular industry because of changing buyer behavior, foreign CAUSES OF UNEMPLOYMENT 71 competition, or other problems. For the economy as a whole, falling labor demand is associated with falling aggregate demand. Falling aggregate demand shifts the labor demand curve from D 0 to ϋχ in Figure 3-6. The least productive or least experienced workers in each indus-try are given pink slips (unemployment notices). The market adjusts to a new equilibrium with lower employment and lower wages, too. This cyclical unemployment is made worse by wage rigidities—the sticky wages shown in the figure. Wages in many markets are not as flexible as the supply-demand model normally assumes. Union contracts, government wage rules, or an employer's unwillingness to risk driving away long-term employees are all reasons wages sometimes refuse to drop even in the face of a surplus of workers. Sticky wages make the unemployment problem even worse and create substantial involuntary unemployment. Employers must cut costs in the face of falling aggregate demand. If they cannot reduce wages, they resort to cutting the work force. Even more workers get the axe when demand falls because of the sticky wages. John Maynard Keynes believed that wage rigidities were part of the cause of the Great Depression. sticky wages: inflexible wages; wage rates that do not fall in response to labor surplus.

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  The Microeconomic Foundations of Macroeconomics

  • G.C. Harcourt(Author)
  • 2019(Publication Date)
  • Routledge

    (Publisher)

  11 An Aspect of the Economic Role of Unemployment R. E. Hall MASSACHUSETTS INSTITUTE OF TECHNOLOGY INTRODUCTION Economic thought on the role of unemployment has evolved in the past decade from the view that unemployment is a simple waste of resources to the view that at least some unemployment is privately and socially beneficial because it yields a better match between jobs and workers. The papers by Phelps, Holt, and Mortensen in the famous volume, Microeconomic Founda-tions of Employment and Inflation Theory (1970) have been especially influential in bringing about this change in thinking. The literature on the microeconomics of unemployment has not settled the issue of the optimality of the equilibrium level of unemployment present in an unfettered competitive economy. The extreme view that the private and social costs and benefits are precisely equal is not widely held. In his thoughtful review of the subject (Tobin, 1972), James Tobin has observed that the process of job search involves externalities associated with congestion and queuing, but is uncertain 'whether the market is biased toward excessive or inadequate search' (p. 8). My purpose in this paper is to study one specific externality in considerable microeconomic detail. The externality arises from the effect of unemployment in the market on the hiring and firing policies of employers. Earlier empirical work of mine has suggested the following hypothesis, which Arthur Okun has picturesquely called the 'spare tyre theory': firms in chronically tight labour markets try to minimise turnover by holding overhead labour during temporary reductions in demands for their products. The costs of recruiting in tight markets motivates this policy. In chronically slack markets, on the other hand, firms treat the unemployed as a readily available buffer stock from which they can draw whenever labour is needed. They do not hold overhead labour because recruiting labour when it is needed is inexpensive.

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