Navigation
Learning the difference between being 'between jobs' and losing a job due to economic shifts.
Imagine an economy so healthy that everyone who wants a job has one instantly. Surprisingly, economists say this might actually be a bad sign! Why is some unemployment considered a normal part of a growing world?
Frictional unemployment occurs when people are temporarily between jobs or searching for their first one. Think of it as the 'friction' or time lag it takes to match a qualified worker with a specific job opening. This is often voluntary. For example, a person might quit a job to find a better-paying one, or a recent college graduate might spend three months interviewing before landing their first role. Because it shows that workers have the freedom to move and seek better opportunities, economists generally view a small amount of frictional unemployment as a sign of a healthy, flexible economy.
1. Sarah works as a junior graphic designer in Ohio. 2. She decides she wants to move to New York City to pursue fashion design. 3. She resigns from her Ohio job on Monday. 4. She spends the next four weeks in NYC interviewing at different firms. 5. During those four weeks, Sarah is frictionally unemployed because she is simply in the process of transitioning between roles.
Quick Check
If a student graduates from high school and spends the summer looking for their first job at a grocery store, what type of unemployment are they experiencing?
Answer
Frictional unemployment, because they are a new entrant into the labor market searching for a match.
Structural unemployment is more serious and longer-lasting. It happens when there is a fundamental mismatch between the skills workers have and the skills employers need. This often occurs due to technological advances (like robots replacing factory workers) or outsourcing (moving jobs to other countries). Unlike frictional unemployment, these workers can't just find a new job tomorrow; they often need to go back to school or move to a different region to find work. The 'structure' of the economy has changed, leaving their old skills behind.
1. A car manufacturing plant installs 50 new AI-driven robots to weld frames. 2. 100 human welders are laid off because the robots are faster and cheaper. 3. The welders find that other local factories are also using robots. 4. To get a new job, the welders must now take a 6-month course to learn how to repair the robots. 5. This is structural unemployment because their specific skill (manual welding) is no longer in demand in that market.
Quick Check
Why is structural unemployment usually considered more 'painful' for a worker than frictional unemployment?
Answer
Because it often requires expensive retraining or relocating, whereas frictional unemployment usually involves skills that are already in demand.
Imagine a country where the total Labor Force is people. 1. During a boom, only people are unemployed (mostly frictional). 2. A massive stock market crash occurs, and people stop spending money on luxury items like jewelry. 3. A national jewelry chain closes 200 stores, laying off employees. 4. The new unemployment count is . 5. The increase in the unemployment rate from to is due to cyclical unemployment because it was caused by the economic downturn.
Which type of unemployment is most likely to affect a travel agent whose job is replaced by a travel-booking website?
During a deep economic recession, which type of unemployment increases the most?
Frictional unemployment is generally considered a sign of a healthy, dynamic economy.
Review Tomorrow
In 24 hours, try to explain to a friend the difference between losing a job because a robot took it versus losing a job because the whole economy is doing poorly.
Practice Activity
Look at a news website today and find one article about a company hiring or firing. Based on the article, try to categorize which of the three types of unemployment is being described.