The term frictional unemployment refers to the time period that occurs between jobs; when a worker is moving from one job to another or searching for a job. Frictional unemployment is always present in an economy since it results from temporary transitions as individuals move from one job to another, or as companies seek out qualified individuals.
Also known as wait unemployment and search unemployment, frictional unemployment can occur for a number of reasons. The measure includes those individuals that are seeking employment but may not be able to find a job due to factors such as geography, wages, work hours, or interest in a specific industry.
For example, a recent graduate may be looking for a job that pays a certain starting salary. Even if jobs are available, the graduate may not apply or accept a job until their salary threshold is reached. These individuals can be employed, but they choose to wait for a job that matches their requirements.
Since frictional unemployment results from a mismatch between the jobs that are available and the individuals that are unemployed, economists would define true unemployment in the following manner:
Involuntary Unemployment = Unemployment – Frictional Unemployment
In the same way workers choose not to be employed, employers can also contribute to frictional unemployment. For example, a company may not hire individuals because they are having trouble locating what they believe are qualified applicants. In this example, frictional unemployment is a result of imperfect information, since qualified individuals are unemployed. Finally, some of the same factors that result in frictional unemployment may result in a stronger economy. For example, workers and employers that are more selective when accepting or filling a job invest more time into finding a better match for their requirements. When a better match materializes, the worker will be more satisfied with their job, and the employer will have a more efficient worker.