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The Impact of Frictional Unemployment on Your Organization

Written by Candice Wolken

May 3, 2019

The Impact of Frictional Unemployment on Your Organization Hero

Frictional unemployment is defined as when a worker is in the process of moving from one job to another. This type of unemployment is generally considered by economists to be a natural part of the labor market but can come with significant costs to your organization.

What Causes Frictional Unemployment?

There are several frictional unemployment examples that show why an employee may be stuck in limbo within their current role:

  • Recent College Graduates – A new college graduate entering the labor market may have job offers that will provide them employment. However, they may be holding out for better offers that make use of their newly acquired skillset. This makes them frictionally unemployed.
  • Voluntary Resignations – An employee may voluntarily leave their current position without having another job lined up, but with confidence in their ability to secure a better position soon. Perhaps they feel they are not being compensated properly, or they may just not feel their current role is the proper fit.
  • Relocation – Employees may opt to relocate for a variety of reasons, from family to a change of scenery. Such moves, whether to a neighboring city or across the country, can occur without the employee having a new position waiting for them. Your employees can use our Cost of Living calculator to easily compare the cost of living in their current location to the cost of living in a new location. In some cases, a better understanding of how their salary will change in a new place may make them think twice about relocating.
  • Lack of Information – A worker qualified to fill an open position may not have the information about the available position. This type of frictional unemployment is sometimes called search unemployment.

Frictional unemployment is generally considered to be short-lived and differs from structural unemployment (i.e., industrial reorganization typically due to technological change) and cyclical unemployment (i.e., the regular ups and downs of growth or production within a business cycle).

How Frictional Unemployment can Cost Your Organization

Your organization can contribute to frictional unemployment when it delays filling a position due to a perceived lack of quality candidates, even if quality candidates are available. But if your employees leave voluntarily in pursuit of better positions elsewhere, this cause of frictional unemployment can be a major concern.

In this case, employees who become frictionally unemployed may not be as productive due to job seeking or lack of motivation, and may even contribute toward poor morale. Additionally, the turnover cost of recruiting new hires is expensive to the business due to recruiting and training expenditures.

In growing economies, it is generally believed that frictional unemployment will rise as workers are more confident in their ability to secure a better position than they currently have. Voluntary turnover was at 14.2% across all industries as reported in our 2018 Turnover Report.

Mitigating the impacts of voluntary turnover that cause frictional unemployment in your organization may be critical to maintaining a healthy workforce.

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