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Frictional Unemployment: Causes, Examples and More Unemployment comes in many forms. Follow along for the definition, causes and examples of frictional unemployment.

By Entrepreneur Staff

The pandemic and its aftermath created massive changes in employment and unemployment statistics.

While unemployment is often spoken about in hushed tones or with a negative connotation, frictional unemployment does not necessarily fall into that category. So what is frictional unemployment, and how does it work?

Read on for:

  • Definition and examples of frictional unemployment
  • Causes of frictional unemployment
  • Ways to promote retention in the workforce

What is frictional unemployment?

Frictional unemployment is the natural transitional phase when a worker leaves a job by choice and is searching for another, as well as college graduates entering the workforce for the first time.

While negative undertones often accompany the term "unemployment," frictional unemployment can signify someone looking for new opportunities.

This type of unemployment can be a sign of a healthy economy because workers are financially capable of leaving one job in search of another that is better suited for their skill set.

Because frictional unemployment is purposefully temporary, it does not add to overall unemployment statistics.

Frictional unemployment vs. other types of unemployment:

While frictional unemployment is temporary and does not necessarily negatively affect the economy, other types of unemployment do not share those characteristics.

To better distinguish the characteristics of frictional unemployment, look at a few other types of unemployment below.

Cyclical unemployment

This is the number of unemployed people during a specific economic cycle. The GDP (gross domestic product) is determined by the country's strengths and weaknesses and the value of goods and services, which indicates each economic cycle.

Cyclical unemployment happens when the GDP falls significantly, reducing job opportunities and causing a spike in layoffs. This is one of the worst unemployment states and generally results in a government-mandated stimulus to boost the economy.

Structural unemployment

Structural unemployment happens when the economy and job market change and no longer match the skills of workers. This often occurs because of technological advances or changes in government policy.

For example, with the creation of self-checkout at grocery stores, demand for cashiers has gone down. This has caused layoffs in that industry, while former cashiers must find an alternate position and learn new skills to secure one.

Natural unemployment

Natural unemployment combines structural and frictional unemployment, indicating the lowest level unemployment can reach before the economy starts to experience inflation.

Related: Labor Shortage? Depends on Who You Ask

Causes of frictional unemployment

Because unemployment is a complex situation, frictional unemployment is never caused by just one thing.

Keep reading below to learn more about the many scenarios that trigger frictional unemployment.

Job dissatisfaction

Job dissatisfaction is not a new concept. However, the pandemic revealed to the world that there are alternative ways to work.

While some enjoy getting out of the house and venturing to the office daily, others prefer the comfort and flexibility of working from home or whichever remote location they choose.

A survey completed by Ernst & Young produced results that showed just how much workers value their flexibility:

  • 54% of workers want to choose when they work
  • 40% of workers want to choose where they work
  • 22% of workers want to work in the office
  • 33% of workers want a shorterwork week
  • 67% of workers believe location does not dictate productivity

Job dissatisfaction was highlighted during the pandemic, as people saw a whole different perspective on what work-life balance could look like. Before the pandemic, common job dissatisfaction complaints included being overworked, clashing with bosses and feeling unfulfilled.

Now, workers desire more autonomy as many believe productivity has nothing to do with location. And as 54% of the working population reports that they will leave their job if they are not permitted some form of job flexibility, frictional unemployment may rise.

Career switching and upskilling

Most people enter the job force before their mid-20s, so there is a high chance their interests and passions will change throughout their life.

The Bureau of Labor Statistics found that approximately 6.2 million workers, i.e. four% of the total workforce, will make a career switch at some point in their life. During this switch, they often enter into the frictional unemployment phase.

Additionally, people adapt, grow and learn new skills throughout their careers. New skills bring new opportunities, and often people outgrow their position or company entirely.

This situation is called "upskilling," as people move onward and upward with their new skillset. When people leave their previous position in search of a new one that better suits their skills, they experience frictional unemployment.

Related: How to Advance Your Career Through Upskilling and Reskilling in Your Current Role

Life events

One of the most common causes of frictional unemployment is the various life events people encounter daily. Many workers leave their jobs for maternity, paternity or other caretaking reasons. Many leave their jobs due to relocation. And some decide they want to pursue higher education.

Whatever the personal reason, those who voluntarily leave their career for a temporary amount of time qualify as frictionally unemployed.

Effects of frictional unemployment

The pandemic shifted so many factors in the workforce. It showed people a glimpse of flexibility; many have left jobs that will not grant remote work.

In addition, there has been a considerable movement toward salary transparency over the past decades. Earlier generations were taught to keep money private; however, millennials have flipped the script.

Communicating salaries amongst peers have put more pressure on companies to be transparent about wages — causing salaries to become more competitive. When employees see the same job at another company for higher pay and more flexible work, it becomes increasingly more difficult for their current company to retain them.

How to promote retention in the midst of frictional unemployment:

Frictional unemployment is a sign of a competitive job market. While this is great for workers, it often means a stressful time for companies. With employees leaving for better opportunities, it can be difficult to fill empty positions.

However, some strategies promote retention and combat frictional unemployment.

Enhance job flexibility

Again, 54% of workers want to choose when they work, and 40% want to decide where they work. Offering job flexibility shows that companies are listening to their employees and trusting them to get the job done.

Companies should offer remote work, a hybrid model or flex days if possible. The workplace dynamic is changing, so it's vital to adapt to remain competitive.

Maintain a strong, positive company culture

Company culture matters whether employees work from home or in the office. An effective team can collaborate, communicate freely and work through challenges that make them stronger.

Company culture is a top-down concept, and leaders should practice the following:

  • Communicating clearly and consistently
  • Following through on promises
  • Considering what is best for both employees and the company as a whole

Offer professional development, mentoring and coaching

When companies prioritize helping employees grow, it does not go unnoticed. Whether employees are brand new or veteran team members, providing employees with coaching and mentoring opportunities may make them feel more cared for.

These opportunities can include the following:

  • Training sessions
  • Job shadowing and informational interviews
  • Networking events

Practice job transparency

As employees enter the job search, they want transparency. Companies should create top job listings on popular job boards like Indeed, LinkedIn, ZipRecruiter and CareerBuilder. to attract top talent. Additionally, companies should maintain easy-to-use career pages.

Related: ZipRecruiter vs. LinkedIn: Which Is the Better Job Search Site?

Prospective employees look for job postings that include:

  • The job title with a detailed job description
  • Role responsibilities
  • Mandatory and desired qualifications and skills
  • Work location (remote work or in-person)
  • Company background and mission statement
  • Working hours and wages
  • Benefits
  • Description of the hiring process

Related: What's My Job, Again? The Fine Art of Crafting the Job Description

Relocation assistance

Moving across state lines or the country is incredibly costly, especially if employees have a family to move with them. A move can cost anywhere from $2,000 to $15,000, depending on factors like distance, number of family members, number of vehicles and volume of possessions.

Offering relocation assistance is a huge perk and helps the financial burden it causes. Companies that provide relocation services are more likely to obtain and retain employees who appreciate the accommodation.

Offer perks

One of the most important things a company can offer is health care benefits. Competitive health care benefits are a huge attraction and retention tool when retaining employees. In addition, wellness perks show that companies value their employees' health and work-life balance.

Wellness perks might include:

  • On-site gyms or gym membership discounts
  • Healthy office snacks
  • Mental health education
  • Company-wide wellness days or weeks

One other small but mighty perk is the employee discount. Everybody loves a deal, whether it's for a company's products or a discount for a partner company. Employee discounts are a great way to show appreciation.

Related: Everything We Know About Unemployment Benefits During the Coronavirus Pandemic

What frictional employment can mean for you

Frictional unemployment is not a new concept. Workers have always maintained different reasons for leaving jobs, from finding new opportunities to moving to a new state. However, the pandemic truly changed the workforce forever.

People evolved their mindset, their priorities and the way they look at workplace dynamics. This shift caused a spike in frictional unemployment and new pressures placed on companies to offer more flexibility and competitive offers.

As the economy begins to slowly recover in the aftermath of the pandemic, it is vital to keep an eye on economic and workforce trends if you are considering becoming part of the frictionally unemployed population.

For the most up-to-date information on the economy, finance and the state of the workforce, visit Entrepreneur today.

Entrepreneur Staff

Entrepreneur Staff


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