What Is Frictional Unemployment?
Frictional unemployment is the technical term for someone who is “in-between jobs” because they plan to move to a new position. Economists use this term for employees who leave their jobs voluntarily or involuntarily. There are other types of unemployment, but frictional is unique because it is seen as a natural part of labor turnover rates.
The majority of frictional unemployment is when an employee leaves their job for a new one. Career changes also fit into this category. Students who recently graduated and trying to obtain full-time positions are also considered under frictional unemployment.
Because frictional unemployment is natural in a healthy economy, it doesn’t always compel a negative impact. In most cases, this type of unemployment can be beneficial. If a higher-qualified employee chooses to explore new opportunities, companies receive applications from candidates. And in many cases, a set relocation strategy offers a significant offset to minimize time and costs for an employee moving to a new destination.
Examples of Frictional Unemployment
There are different situations that would constitute frictional unemployment. Again, because frictional unemployment numbers are high in a healthy economy, it can be suitable for companies and employees alike. The only obvious downfall on the employees’ end is that any type of unemployment can be scary and stressful. The longer the unemployment stent lasts, the harder it is on the employee and their family. Here are some everyday situations that reflect frictional unemployment:
Personal Transition
Maybe the most common example of frictional unemployment. A personal transition can include taking time off to care for kids or an ill relative to a complete career change. As always seen as voluntary unemployment, personal transitions can last just a few days to a long extended time. Career changes usually involve new training or going back to school, so they can take years in some instances.
Another prime example of personal transition unemployment is an employee who leaves their job to start their own business. As people can save and set a foundation for their business, they do their best to time an exit from their current position to take a shot at their dream business.
Geographic Move
There are numerous situations that would fit in this category. The most seen is someone who accepts a new position in a new state or country. No one can just move overnight and be ready to work the next day. The relocation process takes some time in which usually the employee is not working, so there is a small gap in employment before the new job starts. However, if an employee accepts a promotion or corporate relocation assignment from their company, there could still be a minimal employment gap.
Geographic move unemployment matters also occur when an employee’s spouse or partner accepts a job in another location. The employee then gives resignation notice due to the move and then searches for a new job.
Another callout for this type of frictional unemployment might be if an employee wants a fresh start in a new home, but the company won’t allow a transfer and doesn’t offer remote work options. Obviously, this also fits into voluntary unemployment. In most cases like this, it is recommended from a professional point of view that the employee already have a position lined up in their new destination before relocating.
Skill Matching
Skill matching refers to an employee leaving their job for a position where the skills, responsibilities, and requirements are on the same level. This situation usually occurs when an employee feels underappreciated or underpaid at their current company. Sometimes, the employee will apply to open similar positions to get the pay raise they hope to reach. Or if the employee feels the new company can offer better career growth opportunities.
Skill matching frictional unemployment happens in a thriving economy when employees have more power in salary negotiation.
Up-Skilling
Up-skilling frictional unemployment is highly similar to skill matching. The big difference is that the employee is taking a new position because they cannot advance at their current company. The most straightforward call out here is an employee who holds an entry-level job moves to a new organization to go into a manager-level role. Or a manager-level employee wants to be promoted to a director or president-level role. This switch usually happens when an employee is topped out and looking for a higher salary and more responsibilities.
Again, up-skilling is easier done in an employee-favored economy during hiring frenzies. But, just like skill matching, the number of days unemployed is minimal and on the employee’s terms.
Entering the Workforce
Recently graduated college students who have yet to find a full-time job count in frictional unemployment rates. Younger job seekers who are applying and interviewing for positions usually make up the highest rate of this example. This situation for frictional unemployment is the most dependent upon the health of the economy. In a healthy economy where job openings are plentiful, graduates have more options and a better chance of limiting their unemployment days.
It is not uncommon for someone who may have been a stay-at-home parent looking for their first career job since caring for children. And military members whose service time has concluded, now on the job search fit into this category also.
How a Relocation Strategy Can Reduce Frictional Unemployment
Setting up corporate relocation policies can help companies cut down on frictional unemployment. These set policies help quicken the timeline it takes for an employee and their family to move. If the company develops its strategies with a relocation management company (RMC), processing time and costs can be managed better. Companies tend to work with relocation specialists who can provide coaching for the process and a prepared list of vendors who work in the services needed, such as movers and real estate agents.
Frictional Unemployment can hinder companies that relocate new, existing, or promoted employees if they do not have a strategy in place. The company suffers because the moving process drags out; there are numerous days when the position is not filled. On the flip side, the employee suffers because this is time they are not getting paid. But being prepared with relocation packages to offer employees gets them from point A to point B within a reasonable timeline.
GMS Has Taken It to the Next Level
Global Mobility Solutions has been assisting companies with their relocation strategies since 1987. Our team of relocation experts knows how to help companies prioritize their global mobility needs. In addition, we have set in a new Employee Choice Program allowing employees to relocate without their company providing financial sponsorship.
This program is meant for companies to retain top talent for positions allowed to work remotely. In addition, companies can enable employees to relocate while not having to pay for the process. GMS offers this program to companies so that their employees can utilize our list of relocation vendors at great prices. Please fill out this form to get more information on this new program put together by GMS. Then one of our relocation experts will reach out to let you know how your employees can take advantage of the Employee Choice Program.
GMS is here to help with any relocation needs, and our Knowledge Base is full of hard-hitting blog topics that can answer many levels of questions.
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John Fernandez | CRP, GMS, SSB
Executive Vice President John oversees global operations, marketing, business development as well as reporting and analytics. John’s 23 years of mobility experience include excellence in varied positions such as Relocation Counselor, International Assignment Manager, Manager of Latin American Operations, Director of International Operations, Global Account Executive, Vice President of Sales and Vice President of Global Services. The depth of John’s mobility experience also includes multiple assignments and domestic relocations of his own. He has lived and conducted business around the globe and speaks multiple languages.
