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Frictional Unemployment
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Frictional Unemployment

Understanding Frictional Unemployment

Definition and Examples of Frictional Unemployment

  • Frictional unemployment refers to short-term unemployment arising from the challenges of matching employees with employers. For instance, a recent graduate searching for their first job is considered unemployed until they secure a position.
  • This type of unemployment is always present in a dynamic economy, as individuals frequently transition between jobs or enter the workforce.

Job Statistics and Economic Dynamics

  • A graph illustrating net employment changes highlights significant events like the 2008 recession, where up to 800,000 jobs were lost monthly. Post-recession recovery shows an average creation of over 200,000 jobs each month since late 2010.
  • It's crucial to understand that reported job creation figures are net changes; behind these numbers lie millions of hires and separations (quits or layoffs), indicating constant job market activity.

Causes and Implications of Frictional Unemployment

  • Individuals may experience frictional unemployment due to voluntary transitions (e.g., graduates seeking new opportunities) or involuntary reasons such as layoffs or firm closures. Both scenarios reflect normal economic dynamics.
  • The competitive nature of firms leads to some thriving while others fail, resulting in shifts within the job market. Historical examples include the decline of companies like Pan Am and Bob's Big Boy compared to the rise of Southwest Airlines and Facebook.

Importance in Economic Growth

  • Daily job changes—though less visible—are vital for reallocating resources from low-value areas to high-value sectors within the economy.
Playlists: Economics [Intermediate] Pt.1 Principles of Economics: Macroeconomics Unit 6: Unemployment and Labor Force Participation
Video description

Finding a job can be kind of like dating. When a new graduate enters the labor market, she may have the opportunity to enter into a long-term relationship with several companies that aren’t really a good fit. Maybe the pay is too low or the future opportunities aren’t great. Before settling down with the right job, this person is still considered unemployed. Specifically, she’s experiencing frictional unemployment. In the United States’ dynamic economy, this is a common state of short-term unemployment. Companies are often under high levels of competition and frequently evolve. They go out of business or have to lay off workers. Or maybe the worker quits to find a better position. In fact, millions of separations and new hires occur every month accompanied by short periods of unemployment. Frictional unemployment helps allocate human capital (i.e. workers) to its highest valued use. Hopefully, workers are similarly finding themselves with more fulfilling jobs. Even when it’s caused by an event such as a firm going out of business, frictional unemployment is a normal part of a healthy, growing economy. Subscribe for new videos every Tuesday! http://bit.ly/1Rib5V8 Macroeconomics Course: http://bit.ly/1R1PL5x Next video: http://bit.ly/2eV0DYB