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Frictional vs. Structural Unemployment: An Overview
Frictional and structural unemployment are two types of unemployment that can occur in an economy. Frictional unemployment is not a direct result of economic factors. It occurs when workers search for jobs or when someone has stopped actively searching for a position. Structural unemployment is caused by shifts in the economy that make it difficult for workers to find work.
Key Takeaways
- Frictional unemployment involves people transitioning between jobs. It has nothing to do with the economic cycle and is voluntary.
- Structural unemployment is a direct result of shifts in the economy including changes in technology or declines in an industry.
- Frictional unemployment is typically temporary. Structural unemployment can last for years.
- Structural unemployment is very concerning to economists but frictional unemployment is considered inevitable and given less weight in the unemployment rate.
- Discouraged workers aren’t included in unemployment numbers.
Frictional Unemployment
Frictional unemployment is referred to as natural unemployment because it’s not directly related to factors that lead to an underperforming economy.
Frictional unemployment is voluntary and a direct result of temporary transitions in employment. It can take place when new people enter the workforce, people move to find work in another city, and people quit their jobs to find other work.
It also occurs when workers choose to stop actively searching for work and remain unemployed rather than take the first job they’re offered. Frictional unemployment is usually present in an economic system due to these circumstances.
Recent college graduates who are looking for work might not expect to find a job within a year of graduating due to their lack of experience. Offers may come in for jobs that aren’t in their chosen fields, however. They’re considered frictionally unemployed when they reject those offers for that reason.
Fast Fact
Employers can cause frictional unemployment. They might feel that there aren’t enough qualified candidates for certain positions so they don’t try to fill them.
Many economists remain unconcerned about frictional unemployment because there’s no way to stop it from happening. Moreover, frictional unemployment is typically temporary and it doesn’t put a strain on government resources such as social assistance and unemployment benefits.
It’s a good sign of a dynamic economy because it demonstrates that people are looking for higher-paying, better-quality jobs.
Structural Unemployment
Structural unemployment is a type of long-term unemployment that’s caused by shifts in the economy. It occurs when there’s an oversupply of jobs and people who are willing to work them but those people aren’t qualified to do so.
Structural unemployment is often caused by technological advances that can cause some types of skilled laborers to become obsolete.
Assume a data analyst at an investment bank has been working in the field for more than 20 years but has never kept up with technological advances and never learned to program. The analyst’s job in the current day can require programming skills for faster analysis of big data.
The worker could experience structural unemployment if they lose their job and they’re not qualified for other data-analyst jobs that require extensive programming skills.
Structural unemployment can also be caused by a decline in an industry. Assume the price of crude oil has declined over a year. Shale oil drilling companies have also been on the decline, losing money on their total investments due to the weakened oil industry. The shale oil drilling companies must lay off many of their workers to avoid operating at a loss.
The skilled workers in the drilling field don’t have the skills to perform other jobs in emerging industries and markets so the decline in this industry can lead to structural unemployment.
Structural unemployment is a direct result of the economic cycle so economists and analysts take it very seriously. This type of unemployment can last for years and even decades if it’s not addressed; it plays a large role in a nation’s unemployment rate.
Key Differences Between Frictional and Structural Unemployment
Frictional Unemployment
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Caused by workers and employers
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Occurs when workers look for jobs, transition between jobs, and employers leave jobs unfilled
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Is voluntary and temporary
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Isn’t normally a cause of concern for economists
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Doesn’t strain government resources
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Is considered a hallmark of a vigorous economy
Structural Unemployment
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Caused by economic cycle changes
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Occurs when companies lay off workers, and when workers lack skills for jobs offered
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Is involuntary and long-term
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Is a major cause of concern for economists
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Can strain government resources
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Is a sign of a struggling economy
Important
Cyclical unemployment relates to the business cycle and exists when unemployment rises during recessions and declines with economic growth.
Why Would Someone Stop Actively Searching for a Position?
Various studies have indicated that a common reason why people stop actively searching for work is because they’ve given up hope of finding a job. This may be because they believe they lack the necessary skills.
Personal factors can affect the situation as well. The U.S. Chamber of Commerce found that 27% to 28% of respondents indicated during the COVID-19 pandemic that they were either ill or prioritizing their responsibilities to stay home to care for children and others.
How Is the Unemployment Rate Calculated?
The national unemployment rate is calculated by dividing the number of persons who are unemployed by the number in the labor force and then multiplying the result by 100. The labor force is defined as individuals age 16 or over who are employed or unemployed and looking for work. The data excludes discouraged workers.
How Long Does It Take Most College Graduates to Get a Job?
Six months seems to be the magic number but that can change depending on whether the job is in their chosen field or field of study. Grand Canyon University conducted a survey that indicated that almost 90% of students found positions in their chosen fields within six months of graduating.
The Bottom Line
Structural unemployment is caused by economic factors that are generally beyond a worker’s control. Frictional unemployment is more a matter of personal choice. It occurs among workers who are looking for jobs as well as those who’ve stopped actively searching for positions for one reason or another. Frictional unemployment is considered inevitable so it’s not a large factor in the unemployment rate.
