More Than Frictional Unemployment

Economists love the notion of “frictional unemployment.” Some may go as far as to say that all unemployment is frictional – meaning a mismatch in the supply land demand for labor.

One definition (courtesy of BusinessDictionary.com) describes frictional unemployment as follows: “Temporary unemployment arising out of the inevitable time lags in the functioning of labor markets, such as the time taken in moving from one job to another.”

Said another way, if you are out of work and looking for a new job, an economist might classify you as unemployed due to the “friction” in the economy.

Here’s an example: if you worked for an automobile manufacturer in Michigan, and your job was replaced by a worker at a facility in Korea, your unemployment could be considered frictional, as you would be looking for another opportunity to work with the skills you have or learn additional skills that would allow you to pursue a different type of job.

While logically sound, I have trouble the idea of frictional unemployment because it is too theoretical. It is easy for an economist to pontificate about the state of unemployment, but it is much more difficult when you are a personal victim of the “friction.”

Take a look at the short video below by Latoya Egwuekwe. It is an excellent compilation of county-level unemployment data over the course of the recession. [Note: There is no audio.]

There are currently over 15 million people unemployed. When you take into account everyone else who is underemployed, involuntarily working part-time, or who have given up looking for work, the number jumps to over 30 million!

Is this just frictional unemployment?

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Unemployment & Jobs: President Obama’s State of The Union

Here’s what President Obama had to say about unemployment and jobs in his State of the Union speech:

Unemployment

  • Bailing Out The Banks. He said that if the government had not gotten involved during the financial crisis, there is a chance that unemployment might be twice what it is today.
  • Extensions. The President mentioned the unemployment extension. During the past year, unemployment insurance was “extended or increased” for more than 18 million Americans.
  • 2 Million Jobs. Because of the Recovery Act, over 2 million people who otherwise would have been out of work still have their jobs. These include police officers, teachers, prison workers, and fire fighters.

Jobs

  • New Jobs. The one specific area of jobs mentioned was clean energy jobs.
  • Full Employment. “The only way to move to full employment is to lay a new foundation for long-term economic growth.”
  • Financial Reform. By requiring banks to lend to small businesses, President Obama believes that these companies will be able to operate with enough financial stability to retain current employees, raise wages, and hire new workers.
  • Encouraging Innovation. The area of focus here was again clean energy. New technology drives economic growth, and economic growth will lead to new jobs.
  • Investing in People. President Obama referred to education. He proposed a $10,000 tax credit for four years of college, increasing Pell Grants, and forgiving loans on student debt.
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