Frictional unemployment: What to know

You may not be familiar with the phrase “frictional unemployment,” but you likely know what the phrase is all about. Frictional unemployment refers to short-term unemployment among workers, such as graduates who are searching for a new job or people who are voluntarily switching jobs.

This type of unemployment typically happens all the time—frequently when the economy is healthy. Frictional unemployment occurs because of the time it takes job seekers to be paired with job opportunities.

Read on to learn more about frictional unemployment, what causes it and how it compares to other types of unemployment.

Key takeaways

• Frictional unemployment is a temporary, voluntary form of joblessness.

• People who may be frictionally unemployed include job switchers, new graduates and folks returning to the workforce.

• Causes of frictional unemployment include a desire to earn more money, a quest for a better career opportunity or dissatisfaction with the current work situation.

• Frictional unemployment is one of four types of unemployment. The others are structural, cyclical and seasonal.

Frictional unemployment happens when people are temporarily jobless because they’ve voluntarily quit a job and are looking for a new one, they’re seeking a first-time job or they’re reentering the workforce after an absence.

Frictional unemployment is considered part of what’s known as “natural unemployment.” It represents the short-term gap between when someone voluntarily starts looking for a new job and when they land a new job.

The frictional unemployment rate is calculated by dividing the number of people hunting for jobs by the number of people in the workforce. Figures for computing this rate come from the U.S. Bureau of Labor Statistics (BLS).

For April 2023, the BLS reported 166,688,000 Americans were in the civilian—nonmilitary—workforce. During the same month, 5,271,000 Americans were looking for work. So if you divide the number of people looking for work by the number of people in the workforce, you arrive at a frictional unemployment rate of about 0.03%.

The frictional unemployment rate may go down during a recession, when many people stay in their current roles due to job insecurity, and may go up during an economic boom, when job opportunities are plentiful.

Three types of workers propel frictional unemployment:

1. Workers entering the labor market

2. Workers looking for better jobs

3. Workers seeking more fulfilling roles

Two groups of people drive this component of frictional unemployment: new entrants in the workforce and people returning to the workforce. So this could be a newly minted college graduate searching for their first job or a parent who spent two years away from the workforce to raise a child and is now seeking to reenter the workforce.

Workers looking for new jobs are another segment of frictional unemployment. Reasons they might be going after new roles in the job market include the following:

• They’re pursuing a job with a higher salary and better benefits.

• They’re seeking an employer who’s more open to remote work.

• They’re targeting a job with better work-life balance.

• They’re hunting for a job with greater opportunities for advancement.

In some cases, a worker might be switching jobs because they feel unfulfilled in their current role.

A survey by job website Indeed found that among 1,005 people who had voluntarily quit at least two jobs since March 2020, the month that COVID-19 was declared a pandemic, more than 9 in 10—92%—were looking for work that was more fulfilling.

Frictional employment comes with both positive and negative effects. They include the following:

• Sign of healthy economy

• Deeper pool of qualified job candidates for employers

• More difficulty for employers trying to retain workers

• Better opportunities for workers

• Temporary loss of income for workers

• Temporary increase in stress for workers

Frictional unemployment is one of four main types of unemployment. The three others are cyclical unemployment, structural unemployment and seasonal unemployment.

While frictional unemployment results from voluntary decisions by workers, cyclical unemployment is caused by involuntary actions. Specifically, cyclical unemployment happens when companies respond to business or economic conditions by laying off employees to cut costs.

An example of cyclical unemployment: A manufacturer loses its biggest customer, so it lays off 25% of its workforce to reduce expenses.

Whereas frictional unemployment affects workers over the short term, structural unemployment is a long-term situation. Structural unemployment occurs when economic changes trigger a disparity between employers’ needs and workers’ skills. Although jobs may be plentiful, structural unemployment causes some people to be jobless because they lack the expertise that employers are looking for.

An example of structural unemployment: Jim may be talented when it comes to operating equipment at a factory, but he doesn’t have the technical know-how required in high-tech manufacturing. As a result, he’s struggling to find work in the town he just moved to.

Frictional unemployment isn’t driven by seasons, while seasonal employment is. Seasonal unemployment happens when a business cuts some or all of its workforce once its busy season ends.

An example of seasonal unemployment: A theme park shuts down during the winter, leaving all its workers seasonally unemployed.

Frictional unemployment is mostly considered to be a good thing. It typically indicates that the economy is strong. People who might be frictionally unemployed—meaning they’re temporarily without a job—include those who are hopping from one job to another, reentering the workforce or seeking their first job.

If you need help with your job search, check out these 10 tips.