MONTHLY LABOR REVIEW JANUARY 1947 Nature and Extent of Frictional Unemployment' THE Employment Act of 1946 declares that it is the policy of the Federal Government to foster "conditions under which there will be afforded useful employment opportunities, including self-employment, for those able, willing, and seeking to work." Under the best of conditions, however, there will always be some unemployment arising from delays involved in changing jobs and filling job openings rather than from a lack of employment opportunity. Theoretically this type of unemployment-known as "frictional" unemployment— could be eliminated if workers were so trained and controlled as to be shifted immediately to the occupations, industries, and areas where they were needed at any given time and if workers and employers were deprived of the option of terminating their relationship. But this is contrary to our concept of a free labor market in which an employer can hire and fire, an employee can quit, and a worker can choose his own occupation, industry, and geographic locality of work. Frictional unemployment is also a byproduct of economic efficiency and progress. The growth of new industries and industrial areas, the introduction of technological developments, the marketing of new products and the outmoding of old-all these changes cause shifts in the occupational, industrial, and geographical nature of the demand for labor. Such shifts in demand coupled with a degree of immobility on the part of the labor supply inevitably cause some loss of employment. It is impossible to determine just how low the volume of frictional unemployment might be brought under favorable conditions. However, experience during past periods, when employment opportunities were good and labor shortages presented no serious problems, indicates that frictional unemployment does not exceed 3 to 4 percent of the labor force, or an annual average of approximately 2 to 2%1⁄2 million. 1 Prepared by Lester M. Pearlman and Leonard Fskin of the Bureau's Occupational Outlook Division and Edgar E. Poulton of the Labor Economics Staff. Reprints of this article will be available upon request to the Bureau. 1 Nature of Frictional Unemployment For purposes of this discussion unemployment associated with permanent shifts in demand and imperfect mobility of labor is distinguished from that caused by simple labor turn-over and by seasonal fluctuations in labor demand and supply. It is recognized, however, that these distinctions are purely conceptual and that it may be quite impossible to classify an individual jobless worker according to the particular cause of his unemployment.2 Any description of frictional unemployment must presuppose general definitions of employment and unemployment. The definitions of these terms used by the United States Bureau of the Census are adhered to in the present article.3 IMPERFECT MOBILITY OF LABOR If all workers could adjust immediately to changed opportunities, either by moving or by learning new skills, the volume of frictional unemployment would be greatly reduced. The imperfect mobility of labor does not reflect inability to adapt to changed conditions so much as the influence of home and family ties and natural reluctance to leave familiar surroundings and types of work. Modern industrial operations are so mechanized and standardized that a relatively small proportion of workers need to have a highly developed skill. There is, therefore, little occasion for persistent labor immobility attributable directly to the decline of certain industries or occupations. The movement of workers between occupations and industries would be facilitated, of course, by positive measures for training, retraining, and vocational guidance. Pressures against leaving familiar surroundings, friends, and family are probably even stronger than those against changing to a new type of work. The uncertainty and fear attending migration are reenforced by its cost. This is particularly significant, for it is precisely those who should move that usually lack the means to do so. Added 2 Cf. Sir William Beveridge, Unemployment-A Problem of Industry (Toronto, Longmans, Green and Co., 1930, p. 3): "Any one unemployed individual may represent, and commonly does represent, the concurrence of many different forces, some industrial, some personal. A riverside laborer might be suffering at one and the same time from chronic irregularity of employment, from seasonal depression of his trade, from exceptional or cyclical depression of trade generally, from permanent shifting of work lower down the river, and from his own deficiencies of character or education Classification of men according to the causes of their unemployment is, strictly speaking, an impossibility. The only possible course is to classify the causes or types of unemployment themselves." Census definitions are as follows: Employed.-Persons aged 14 years and over who during a specified week (1) work full or part time for pay or profit; or (2) work without pay in a family enterprise (farm or business) at least 15 hours; or (3) have a job but do not work because of illness, vacation, labor-management dispute, bad weather, or lay-off with definite instructions to return to work within 30 days. Unemployed.-Persons aged 14 years and over not working but seeking a job during a specified week. Includes also those who would have been seeking a job except for the fact that they were temporarily ill, expected to return to a job from which they had been laid off indefinitely, or believed no work to be available in their community. to these factors is the general ignorance as to where opportunities lie. The national labor market is made up of many separate local markets, which are isolated from each other to a degree which varies with the distance between them. Even during World War II, severe labor shortages existed in some areas while surpluses of workers prevailed in others. This was recognized by the War Manpower Commission's fourfold classification of labor-market areas. For example, those in group I (the most stringent) were "areas of current acute labor shortage," while those in group IV (the least stringent) were "areas in which a substantial labor surplus will remain after 6 months." Whatever measures are adopted to encourage geographic mobility, some unemployed workers remain rooted in their home communities. Some of this immobility provides a healthy measure of social stability. The International Labor Office recommends in its report to the Philadelphia Conference (1944) that government policy be "designed to prevent excessive and unnecessary movements of workers from one area to another." The report also suggests, however, that it would be worthwhile to encourage migration from areas of labor surplus and poor prospects to areas where additional labor is needed and future prospects are good. The degree of labor mobility is influenced by the composition and the affiliations of the labor force. Young persons have fewer ties to particular localities than do older persons. Women are less abledepending partly upon the strength and character of our social customs-to venture forth into new areas. And, along with certain minority groups, their occupational range is limited by convention. Entry to and continuance at particular jobs is often conditioned by union affiliation, seniority provisions, and other considerations that invest those jobs with an unusual value. The growing average age of the labor force, the increasing proportions of women and of handicapped persons in it, and the increasing extent of vested interests in particular jobs are operative in the direction of less mobility. At the same time, however, certain barriers to the occupational mobility of women and minority groups are breaking down. And wartime experience indicates that, under full employment, workers have less urgent attachment to their jobs and mobility is greatly increased. LABOR TURN-OVER Unemployment involved in labor turn-over results from the normal exercise by the employer and employee of their mutual right to terminate their relationship. Such unemployment arises from the physical delay in shifting from one job to another inherent in a labor International Labor Office, The Organization of Employment in the Transition from War to Peace, Montreal, 1944 (p. 152). market in which job seekers and employers do not have perfect knowledge of available job openings or labor supply. The effect of turn-over on the volume of unemployment may be illustrated by the following example. If every employed worker changed his job once a year and took 1 week in the process, annual unemployment from that source would average about 2 percent of the labor force, or approximately 1,200,000 persons. It is assumed in regard to unemployment associated with labor turn-over that the period between jobs is only as long as physical necessities make it. This period, of course, varies with the character of the change. If it is initiated by the worker, it is probable that in most cases he has other employment in view. This is, however, not always true. In a condition of high employment opportunity, workers would be less hesitant about quitting jobs if they thought they could readily obtain others, even though they had no specific job in mind. In such cases, as well as in lay-offs, an employment service widely used by both employers and workers helps to reduce the period of unemployment. SEASONAL UNEMPLOYMENT The physical conditions and social customs which concentrate demand for labor in certain seasons of the year and make for slack periods in other seasons are well known. The wheat harvest does not come in December nor Christmas in June. It is true, however, that there have been notable advances in spreading production over the year and in dovetailing the operations of seasonal industries and further progress is possible. For example, extension of the guaranteed annual wage would further stimulate the stabilization of employment in industries affected by seasonal changes. Also, under conditions of ample employment opportunity, seasonal industries would be under heavier pressure to regularize their production in order to recruit workers. Nevertheless, neither the physical basis of seasonal employment nor the social customs that concentrate economic demands in particular parts of the year can be ignored, and seasonal unemployment must be recognized as a component of frictional unemployment. The relation of seasonal unemployment to the general level of economic activity is not necessarily direct. In those industries which show wide fluctuations in employment between active and slack periods particularly the construction industry-the seasonal component of total unemployment may well be larger in prosperous years than in slump periods. In addition to the seasonal unemployment arising from fluctuations in labor demand, there is a marked seasonality in the unemployment associated with the entry of new workers into the labor market. Most workers seek their first jobs when school terms end-particularly in late spring and early summer-and there is inevitably some delay in getting placed. The search for summer work on the part of students at the start of the school vacation also causes some temporary unemployment. Nonfrictional Types of Unemployment Briefly, frictional unemployment is that type of unemployment which is not significantly reduced by a general increase in the demand for labor. Other types of unemployment-although they are not necessarily associated with a severe slump in labor demand-are not consistent with conditions of satisfactory employment opportunity. Chief among these types are a "hard core" of physically or socially handicapped persons out of work and a "reserve" designed to assure flexibility. "HARD-CORE" UNEMPLOYMENT Under conditions of low employment opportunity such as existed in the past, there is a group of persons who rarely find employment or who remain employed only for short periods. Some have never acquired a skill and are able to perform only the most casual work. A considerable number have physical or temperamental handicaps which prejudice their holding jobs. Others are the victims of discrimination that has no relation to economic capacities. But relative inefficiency on the part of the worker or prejudice on the part of the employer are not basic causes of unemployment; rather they are determinants of which individuals and groups will suffer most from unemployment. During periods of high labor demand, this so-called "hard core" virtually disappears. Figures available for the war period, for example, show that very few persons stayed unemployed for any considerable length of time. In April 1945, about three-fifths of the 950,000 persons actively seeking work had been looking for jobs less than 1 month and ninetenths had been seeking employment for less than 4 months. Many workers whose services were shunned in prewar days demonstrated a capacity that favors their continued employment. War production prompted a reestimate of the worth of the physically impaired, whose disabilities frequently are assets, especially to the degree that they reduce costly labor turn-over. The training courses set up during the war demonstrated that many handicapped persons have a contribution to make, if only a little more than the usual patience and skill are used in their rehabilitation. This group deserves special attention in view of the increase in its size as a result of the war. |