Frictional Unemployment: Everything You Need To Know

More job seekers are looking to work with organizations that give them a sense of purpose which ultimately translates to job satisfaction and high productivity levels. Employers and managers are beginning to deal with the reality of losing top talents to various factors that motivate employees to resign.

As more employees realize that they have the decision power to determine when to seek new roles or stay off current jobs for whatever reason seems best to them, it creates the reality of frictional unemployment. For organizations gaining such employees in the long run—it’s a plus, but it could be a dilemma for organizations losing them.

What is frictional unemployment?

According to a Bureau of Labor Statistics (BLS) frictional unemployment definition, it’s a phase of unemployment when employees are transitioning from one job role to another. In this period, they intentionally leave their current job roles to commit to finding another—staying unemployed—during this phase.

While it could be a sign of a thriving economy where full employment exists, it could also be challenging where there’s a shortage of talented employees to handle critical roles in various organizations.

Common examples of frictional unemployment

Various employees choose to leave their jobs to find new ones or stay unemployed for a period for different reasons. A frictional unemployment example includes:

• An individual who chooses to resign to develop a skill that makes them employable for a higher role or to enter a different career path.
• A couple who decides to focus on building intimacy in the first few months of a new marriage.
• Resigning to spend more time with loved ones while building a new side hustle.

What causes frictional unemployment?

Frictional unemployment occurs when employees decide to make decisions that favor an upward move or a better outcome in their unique experiences and re-enter the job market. Here are some factors that are responsible for employees becoming frictionally unemployed.

Existential crisis:

People often get to a point in their lives when they begin to seek answers to the meaning of life and the purpose of life itself. During this period of an existential crisis—what it’s called, their current job roles may become the opportunity cost for such phases. They may decide to step back from corporate employment to rediscover who they are and what they want out of life. At this point, they may not be seeking reentry into new jobs until they’ve got the answers they seek.

Job dissatisfaction in their role or company:

An employee who isn’t satisfied with their job role or the organization they work with may decide to let go of their current jobs while they seek new a one. Often, such employees have a portfolio that makes it difficult to stay out of job for long, as other organizations with better work cultures are happy to employ them.

Wanting more out of life:

Many people spend a good deal of their time and the best part of their lives committing to their jobs and rising on the corporate ladder. With time, some employees may begin to feel the need to get more done with their lives than spending all their time on their jobs. This may drive the decision to spend time pursuing what counts for them—family and purpose for instance—while they look for flexible job opportunities that can accommodate their new found purpose.

Switching to new a career path:

As the future of work keeps evolving, employees may find themselves falling in love with a new career path and job role than they’re currently on. This could trigger a resignation, which allows them to spend time gaining education, honing and perfecting the skills that make them employable in the new career.

Upskilling for new roles:

A significant cause of frictional unemployment is the need to take on new roles that reflect a climb in the career ladder for an employee. Such roles may require some form of professional training and certification that allows them to be eligible for bigger responsibilities. Where there’s no provision for such growth or the current role seems too demanding to combine both, frictional unemployment becomes the only option.

Chasing a new passion or building a side hustle:

Frictional unemployment may occur because the employee is seeking to chase a new passion that is not in alignment with their current career path. At other times, the new passion may be building a new side hustle that requires 100% attention at its starting phase. Employees that fall in this category, are likely to seek reentry into the workforce once all these passions are being/have been duly attended to.

What are the impacts of frictional unemployment?

When people choose to stay unemployed for a period before getting employed again, it may mean various things to everyone involved. If employees are leaving jobs to upskill for better career roles, it could contribute significantly to the economy. However, if they’re leaving because they are in the middle of an existential crisis, or dealing with the need to respond to pressing needs high up on their list of priorities—that could be worrisome for employers and managers. Here are some impacts that frictional unemployment could have;

Better satisfaction for employees, ultimate satisfaction for employers:

During the phase when an employee chooses to pursue some interests while staying off their jobs, they often experience a high degree of satisfaction. This inherently becomes relevant when they reenter the workforce, as the confidence they derive from such satisfaction can help to induce the high efficiency and productivity required in their new job roles. It eventually amounts to satisfaction for employers who ultimately benefit from that satisfaction.

Low job retention rates for organizations:

When frictional unemployment is at its peak, organizations are likely to struggle with retaining top talent. When employees who are critical to an organization’s operations resign, the management may face a replacement dilemma especially if it happens at a critical time in the organization’s schedule. The lack of control over the rate of employee retention can be frustrating for the management, and even build a distrust that makes an organization seek replacements for existing employees in case of eventualities.

Competition finding quality talent:

Top-rated talents are constantly hunted by various organizations, thus giving them a plethora of options to choose from if need be. This means that an organization is likely to be competing for talent with a sizeable number of others. More often than not, the organization with the best work culture or offerings wins. Hence, organizations are forced to evolve and rethink their work culture to be able to attract quality talent.

Healthy economic growth:

Where full employment is an indicator of healthy economic growth—frictional unemployment being a contributing factor—it means that there are enough jobs to go around in an economy. It’s also noted to significantly control inflation in an economy, where the demand for work doesn’t exceed the available jobs.

Other types of unemployment explained

If frictional unemployment doesn’t necessarily impact an economy negatively, then why is unemployment perceived negatively? Well, this is due to other types of unemployment which may be more harmful to the economy. Here are other types of unemployment compared to frictional unemployment.

Cyclical Unemployment:

In simple terms, cyclical unemployment happens when the economy is hard and organizations let go of staff because they can’t afford their payments. Cyclical unemployment is a negative type because job seekers who are willing to work cannot continue to do so because of prevailing economic factors. According to the BLS, cyclical unemployment could be induced from a negative shock on the economy when the demand for labor and its supply is at an equilibrium, and organizations cannot meet up with the prevailing wages for their staff.

Seasonal unemployment:

Seasonal unemployment refers to joblessness that occurs during certain seasons or periods of the year. This type of unemployment is typically seen in industries such as agriculture, tourism, and retail, where demand for goods and services fluctuates with the changing seasons. For example, a farmer may have a surplus of workers during planting and harvesting seasons, but have very few jobs available during the winter months. Similarly, a ski resort may have a high demand for workers during the winter, but very little demand during the summer. Seasonal unemployment can be a challenge for individuals, as they may have difficulty finding consistent work throughout the year.

Structural unemployment:

Structural unemployment also involves a transition, except that such employees need to upskill, get trained or become educated to be able to function in a new job role. Structural unemployment occurs when the current skills and training of employees become obsolete or irrelevant in the light of structural policies governing certain job operations.

Strategies to enhance talent retention amid frictional employment

An important way to draw out strategies to retain employees is to pay attention to the causes of frictional unemployment. Once you’re aware of the factors, it’s easier to adjust organizational policies to meet those needs as much as possible. Here are some strategies to keep in mind.

Humane work cultures:

If an employee is dissatisfied enough to resign from a job role while still seeking another, then it’s an indicator of how toxic the organizational work culture is. As organizations looking to retain employees in the long term, consciously look into your work culture to determine toxic standards that need to be taken out. For instance, asking employees to report to work physically before getting sick leave or fixing team bonding events on holidays are some toxic cultures that could frustrate an employee into frictional unemployment.

Invest in employee coaching:

When organizations invest in employee coaching, employees are likely to know how to manage an existential crisis if they ever have to deal with it. During personalized sessions, they can work with their coaches in figuring out what drives them, and the meaning of life and find ways to answer various life questions. Solo employees are more likely to take a break from the workforce to find these answers than employees who work with their coach as a tag team.

Provide employees with personal and professional development opportunities:

As noted earlier, employers ultimately benefit when their employees are satisfied on the job. One of the ways to reduce frictional unemployment is by providing opportunities for employees to grow personally and professionally. This way, they don’t have to leave their jobs to get the growth they seek—ultimately a win-win. Also, employees seeking to move up their career ladder can do so within the organization instead of seeking it elsewhere.

Develop a great hiring strategy:

Some organizations have missed out on hiring highly valuable job seekers, just because the last job roles didn’t reflect a career break. Thanks to Linkedin’s move—introducing career breaks, some organizations can now look beyond the last job to looking in-depth at a talent’s profile. Companies that still exercise a bias towards career breaks are not likely to find highly resourceful talents when scouting for them.

Final Words

When employers are looking to retain resourceful talents, it’s important to pay attention to internal cultures that may contribute to frictional unemployment. Employing coaches, and seeking ways to introduce purposeful causes into an organization’s mission, can be a great way to manage frictional unemployment.