WHY SOME FRICTIONAL UNEMPLOYMENT IS INEVITABLE
Frictional unemployment is often be changes in the When consumers decide that they prefer Den to Gateway computers, Dell increases employment, and Gate way lays off workers. The former Gateway workers must now search for new jobs, and Dell must decide which new workers to hire for the various jobs that have opened up. The result of this transition is period of unemployment. Similarly, because different regions of the country produce different goods, employment can rise in one region while it falls in another. Consider, for instance, what happens when the world price of oil falls. Oil. producing firms in Texas respond to the lower price by cutting back on production and employment. At the same time, cheaper gasoline stimulates car sales, so auto-producing firms in Michigan raise production and employment. Changes in the composition of demand among industries or regions are called sectoral shifts. Because it takes time for workers to seardl. for jobs in the new sectors, sectoral shifts temporarily cause unemployment. Frictional unemployment is inevitable simply. because the economy is always changing. A century ago. the four industries with the largest employment in the United States were cotton goods, woolen goods, men’s clothing, and lumber. Today, the four largest industries are autos, aircraft, communications, and electrical components. As this transition took place, jobs were created in some firms and destroyed in others. The end result of this process has been higher productivity and higher living standards. But along the way, workers in declining industries found themselves out of work and searching for new jobs. Data show that at least 10 percent of U.S. manufacturing jobs are destroyed every year. In addition. more than 3 percent of workers leave their jobs in a typical month, sometimes because they realize that the jobs are not a good match for their tastes and skills. Many of these workers, especially younger ones, fin new jobs at higher wages. This churning of the labor force is normal in a well-functioning and dynamic market economy, but the result is some amount of frictional unemployment.