What We Have Here Is Frictional Unemployment

Much of the argument about what is causing the persistent unemployment following the recession that ended in 2009 has been over whether it is cyclical unemployment or structural unemployment. Cyclical unemployment is unemployment produced by fluctuations in demand induced by the business cycle. Structural unemployment is usually induced by technological change. The rise in popularity of the automobile lead to a decline in the demand for buggywhips and, consequently, reduced demand for buggywhip makers.

Economists who are advocates for the view that the unemployment bedeviling us today is cyclical include Paul Krugman and Brad DeLong. Economists who are advocates for the view that structural unemployment is what we’re facing include Narayana Kocherlakota, Arnold Kling, Tyler Cowen, and, perhaps, Joseph Stiglitz. Bond fund manager Bill Gross has also suggested that structural problems are the main ones we’re seeing.

There is a third form of unemployment that I haven’t seen mentioned nearly often enough and which I believe merits further consideration as at least a contributing factor to the persistently high level of unemployment: frictional unemployment. Frictional unemployment is usually defined as the transitional period between jobs but I think that we might consider a broader definition. Consider the following examples:

  • A young person cannot find work doing something that he or she cares to do or paying a wage that he or she cares to earn. He or she goes to school to earn an associates, bachelors, masters, doctorate.
  • A woman in Akron loses her job. She cannot find any kind of work in Akron. She cannot leave Akron because she needs to look after her elderly mother.
  • A man in Omaha loses his job. His wife is employed. He cannot find a job that pays more than the amount he is receiving in unemployment benefits plus the cost of child care. As long as he continues to receive unemployment benefits it makes financial sense for him to remain unemployed.
  • A woman in New York loses her job. She is hired by a company in Fargo. She cannot leave New York because she is underwater on her mortgage and has no way of settling with the bank to whom she owes money other than default (which would threaten the job in Fargo).
  • An electrical engineer loses his job. He cannot find a job as an electrical engineer. If he took a degree/certification course he could qualify as a medical technician, a field in which he can find a job. He can’t get into the degree/certification course because there aren’t enough slots.

I don’t think that any of these examples fit handily into either the category of cyclical or structural unemployment but could reasonably be considered frictional. I would further suggest that as our society becomes more complex the role of this kind of frictional unemployment will tend to rise beyond its heretofore minor role.

I read Robert Barro’s findings on the role of unemployment insurance in raising the rate of unemployment as an indictment of just this sort of frictional unemployment.

11 comments… add one
  • Bob in VA Link

    There are also those collecting un-employment but doing work for cash and getting paid under the table. Not enviable but sustaining at least.

  • There are also those collecting un-employment but doing work for cash and getting paid under the table.

    That touches on something I’ve mentioned here before: people working two or more part-time jobs. Imagine a worker who works sixteen hours a week at one job, ten at another, and ten at a third. If reported completely accurately, that individual should count as employed full-time on the household survey but not on the establishment survey and in practical terms would probably not characterize him- or herself as being employed full-time.

    But, yes, I think the black and gray economies are enormously larger than the Bureau of Labor Statistics or the CBO expects.

  • steve Link

    I think Barro is still too influenced by the European models of UI. I would agree that UI which replaces 100% of income and lasts for years causes problems. The amount of money you get from UI in the US is much different. I think that Josh Barro is correct, and that it has a relatively small effect. That said, I think that you are correct about frictional unemployment. I think both sides in the debate claim them for their side of the argument. (I think it also fairly clear that there is a substantial mix of both kinds of unemployment, and that cyclical eventually becomes structural as no one will hire long term unemployed.)

    Steve

  • (I think it also fairly clear that there is a substantial mix of both kinds of unemployment, and that cyclical eventually becomes structural as no one will hire long term unemployed.)

    Pretty much my view but I think that the Powers-That-Be need to take frictional issues more seriously.

    Let me give another example. A school district is contractually obligated to give teachers raises according to a step plan. The additional money is not available to do that. They lay off the teachers with the lowest seniority (and no tenure) to give the contractual raises to the remainder.

    Cyclic unemployment or structural? I would say that it is neither but frictional. The usual Keynesian story on this is “sticky wages” but I think there’s something broader at work, best described as frictional unemployment.

  • Andy Link

    I know a few people who fall into the ui/child care situation.

    I’d add me as a military spouse – you’ve got child are costs plus you have to move every two- three years. There are very few careers that are compatible with that.

    Overall I think spouse employment is a pretty big frictional factor – it’s simply harder to pick up and move two careers to where the jobs are

  • PD Shaw Link

    It would seem to me that if the transition period of frictional unemployment might be infitnity, then its structural unemployment.

  • It would seem to me that if the transition period of frictional unemployment might be infitnity, then its structural unemployment.

    Structural unemployment is usually attributed to a skills mismatch. In the examples I’ve given there’s something else at work. Yes, it’s structural in the literal sense of the word but it doesn’t involve a skills mismatch or technological obsolescence.

  • Icepick Link

    I’ve lived the second and third bullet points. I have know or know lots of people for whom those two points, as well as point one, apply. I don’t really know of people in points four or five personally, although if I ask around I will probably find them. Perhaps I’ll check into that on Monday.

    I’ll note that point 3 is hard on a marriage. I know several people who have been in that situation, or even one where both lose their jobs, and the marriages don’t hold up, even ones that have had long duration. I’ve been lucky on that front. Partners make the worst enemies.

  • Icepick Link

    Regarding point three and marriages: I know of at least one couple where the problem wasn’t money but that the husband just could NOT adjust to the roll of being Mr. Mom. The wife was making sufficient money that they didn’t have to adjust their lifestyle too much otherwise. He just couldn’t do it. Eventually the wife lost patience with him when she kept having to leave work to go shuttle the children to this event or that because he simply wouldn’t. Times have changed, but it is hard for a lot of men to adjust to that kind of roll. Times have changed, but men still don’t like ‘domestic’ work.

    Another spot where I’ve been lucky, as I had no problems with that change, although I do get looks at the playgrounds and libraries and other child-friendly venues. The mothers do not like having adult males around, and distrust them unless they’re there with a mother-type. I can get how younger men especially wouldn’t like those environments.

  • Icepick Link

    This frictional unemployment concept is interesting, but it seems to ultimately boil down to lower overall economic activity. It’s one thing to talk about someone in some small town in Nebraska that can’t find a job and needs to leave for the big city. But the Orlando metro area has around 2 million people (IIRC), the idea that I’ve got to leave for East Cowlick North Dakota to have a prayer of finding a job is a bit ridiculous. That’s just a lousy economy.

  • PD Shaw Link

    I guess I have two problems with this concept or these examples. The one is the focus on attachments in some of the examples. People become attached to spouses, family, houses, communities, that lead them to be employed for less. I don’t see how that in and of itself can be an unemployment problem. Life is trade-offs.

    All the rest only make sense to be treated seperately so long as they are temporary. If they aren’t temporary, one should be able to make a case that is either structural or cyclical. The unemployment benefits run out; the house is foreclosed on; an opening in a training program occurs.

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