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There are a couple of important differences between frictional and structural unemployment, but one of the most basic hinges on intentionality: unemployment that is frictional is chosen, whereas that which is structural is typically forced. People who voluntarily quit their jobs and then don’t find new work right away usually fall into the frictional category. Those who are fired, laid off, or otherwise terminated are usually seen to be in the structural class. Both groups were created by economists and social researchers who want to get a more accurate picture of not just how many people in a given place are unemployed, but also to get a sense of what those numbers really mean.
In this respect, one of the most important differences between frictional and structural unemployment is what each represents. When people are willing to take risks and leave their jobs in hopes of new and different opportunities, it’s usually safe to assume that there is a lot of public confidence in the marketplace. Perhaps paradoxically, high numbers in this category can often represent growth. When jobs disappear or when industries shrink and the people who have been displaced aren’t able to find new work, however, the outlook is often much more bleak. There are usually differences when it comes to benefits and social welfare provisions between the categories, too.
“Unemployment” is an economic term that can loosely apply to anyone who doesn’t have a paying job, though it’s most commonly used when talking about people who once worked but, for whatever reason, are currently out of a job even though they want to be employed. Differentiating between frictional and structural unemployment is a good way for government leaders and scholars to understand what is driving unemployment. It can also help them find effective ways of solving the problem.
Frictional unemployment is usually seen as voluntary because it often happens when people decide they want to find other work opportunities. They may resign from their jobs in order to move to new cities or towns, or they may simply experiment with different types of jobs as they try to find their niche. Frictional unemployment is fairly common among recent graduates as they try to find work and young people as they look for a job that really fulfills them. People who voluntarily resign without a new job in hand are usually very confident that they will find the right fit at some point, even if it means being unemployed for a short amount of time.
Structural unemployment is more commonly associated with terminations and downsizing: events that are usually out of the employees’ control. Sometimes, when there is a reduction in the demand for the goods produced by a company due to variables like changes in customer preferences, competition, and high costs, a company will look for ways to save money, including laying off some workers. Another cause may be a lack of adequate communication regarding the availability of jobs, meaning that the job seekers do not know that there are job openings in their preferred industries.
Technology is also a big factor. The introduction of automation in customer care, for example, has reduced the need for the services of a percentage of front line customer service agents. Automated prerecorded computer messages now answer the calls and only transfer to human agents when the needs of customers are too complicated for the computer to resolve.
The differences are also important from a sociological perspective, in that they each tend to mean different things about the overall economic health of a given place. A city with a high frictional unemployment index, for instance, may actually be one of great growth and productivity, since people who have quit their jobs are generally expecting to find something better and are thereby indirectly showing their faith in the marketplace. By contrast, a locality with a large number of people in the structural category may be experiencing a recession or other negative dip in the economy.
Governments often structure benefits and incentives to unemployed people based on these categories, as well. Standard unemployment benefits are often only available to people who have actually been terminated or otherwise lost jobs that they wanted to keep, for instance. Some benefits may come to people who have resigned their jobs if they don’t find new work within a certain amount of time, but not always.
Structural unemployment creates its own set of problems, doesn't it? It is not always heralded by technology changes because we do see this take place when, for example, manufacturing employees earning high wages find themselves without jobs when companies outsource their industrial operations to nations with lower labor rates.
The main problem with structural unemployment is that it is often tough to figure out what to do with a bunch of misplaced workers. Do you retrain them to do other things, show them how to adapt to new technologies or what? When you see high unemployment rates, that is often evidence you've got a lot of established workers who suddenly find themselves out of work.
A lot of economists will tell you that a decline in voluntary, frictional unemployment is one of the many problems created during recessions. When you see that voluntary unemployment drop, that means people are less willing to take risks and are holding on to the jobs they have because they lack confidence in the economy.
In other words, a drop in voluntary unemployment also means a decrease in entrepreneurial efforts, which is the type of thing an economy needs to grow and adapt to changing consumer demands.
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