Frictional Unemployment

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[Alex] Frictional unemployment
is short-term unemployment

caused by the ordinary difficulties
of matching employee to employer.

The moment a student graduates,
for example,

and starts to look for work,
they're officially unemployed.

After a few weeks
of applications and interviews,

the student might be offered a job,
but perhaps the pay is too low,

or the location not quite
what the student wanted.

The student remains unemployed.

Only after a few weeks more does
the student find and accept a job

and officially exit unemployment
and enter employment.

The student's period
of unemployment --

that's frictional unemployment.

Now frictional unemployment --
it's ever-present,

because the U.S. economy
is very dynamic.

To see this dynamism,
let's take a closer look

at some of the job statistics.

We often hear on the news

that, say, 200,000 new jobs
were created or lost this month.

Here's a graph
of net employment changes.

You can see the big recession
in 2008 and 2009.

when in the worst months

as many as 800,000 jobs
were being lost.

Since the end of 2010,
you can also see the recovery,

where there have been
a little more

than about 200,000 jobs
created every month.

Now, these figures --
they are useful,

but it's important to understand
that they're net changes.

When the news reports

that 200,000 new jobs
were created this month,

what actually happened
is that there were

around 4.5 million new hires

and 4.3 million new separations,

that is quits or layoffs.

So the net number -- it hides
the vast amount of job change

which is actually happening
behind the scenes.

Every month, millions
of people quit their jobs --

sometimes to get a new job,

sometimes to go back to school,
sometimes to retire.

Other people start new jobs
after graduating

or finding new opportunities.

This all causes
frictional unemployment

and it's a normal part
of a dynamic economy.

Now sometimes changing jobs
isn't by choice.

People lose their jobs due
to a firm going bankrupt,

downsizing, or moving locations.

But that can also be part
of a healthy economy.

When firms compete,

some will naturally
do better than others

at delivering the products
and the services

that consumers actually want.

We used to fly Pan Am,
eat at Bob's Big Boy

and choose our top 10 friends
on Myspace.

These firms, however,
they've disappeared,

while others such as
Southwest Airlines,

Shake Shack and Facebook
have grown.

It's easy to see these big changes.

Less obvious are the smaller changes
that occur every day.

But all of these changes
are important

because they move resources
across the economy

from where those resources
have low value

to where the resources
have high value.

So short-term,
frictional unemployment --

it's inherent in a growing
and changing economy.

And overall, it's a small price
to pay for growth and change.

More serious, however,

are the two other types
of unemployment:

structural unemployment
and cyclical unemployment.

That's what we'll turn to next.

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