AP_Krugman_Textbook

lagging sales, even as Japanese companies such as Toyota announced plans to open new
plants in North America to meet growing demand for their cars.
This constant churning of the workforce is an inevitable feature of the modern econ-
omy. And this churning, in turn, is one source of frictional unemployment—one main rea-
son that there is a considerable amount of unemployment even when jobs are abundant.

Frictional Unemployment

Workers who lose a job involuntarily due to job destruction often choose not to take
the first new job offered. For example, suppose a skilled programmer, laid off because
her software company’s product line was unsuccessful, sees a help-wanted ad for cleri-
cal work in the local newspaper. She might respond to the ad and get the job—but that
would be foolish. Instead, she should take the time to look for a job that takes advan-
tage of her skills and pays accordingly. In addition, individual workers are constantly
leaving jobs voluntarily, typically for personal reasons—family moves, dissat-
isfaction, and better job prospects elsewhere.
Economists say that workers who spend time looking for employment are
engaged in job search. If all workers and all jobs were alike, job search wouldn’t
be necessary; if information about jobs and workers were perfect, job search
would be very quick. In practice, however, it’s normal for a worker who loses a
job, or a young worker seeking a first job, to spend at least a few weeks searching.
Frictional unemploymentis unemployment due to the time workers
spend in job search. A certain amount of frictional unemployment is in-
evitable, for two reasons. One is the constant process of job creation and job
destruction. The other is the fact that new workers are always entering the
labor market. For example, in January 2010, when unemployment was high,
out of 14.8 million workers counted as unemployed, 1.2 million were new en-
trants to the workforce and another 3.6 million were “re -entrants”—people
who had come back after being out of the workforce for a time.
A limited amount of frictional unemployment is relatively harmless and
may even be a good thing. The economy is more productive if workers take the
time to find jobs that are well matched to their skills, and workers who are un-
employed for a brief period while searching for the right job don’t experience
great hardship. In fact, when there is a low unemployment rate, periods of un-
employment tend to be quite short, suggesting that much of the unemploy-
ment is frictional. Figure 13.1 shows the composition of unemployment in

module 13 The Causes and Categories of Unemployment 127

Section 3 Measurement of Economic Performance

During the housing slump of 2009 when

unemployment was running very high,

many construction workers resorted to

more traditional methods of finding work.

istockphoto

Workers who spend time looking for

employment are engaged in job search.

Frictional unemploymentis

unemployment due to the time workers

spend in job search.

figure 13.1

Distribution of the Unemployed

by Duration of Unemployment,

2000 and 2010

In years when the unemployment rate is low, most

unemployed workers are unemployed for only a short

period. In 2000, a year of low unemployment, 45% of

the unemployed had been unemployed for less than

5 weeks and 77% for less than 15 weeks. The short

duration of unemployment for most workers suggests

that most unemployment in 2000 was frictional. In

early 2010, by contrast, only 20% of the unemployed

had been unemployed for less than 5 weeks, but

41% had been unemployed for 27 or more weeks, in-

dicating that during periods of high unemployment, a

smaller share of unemployment is frictional.

Source: Bureau of Labor Statistics.

27 weeks

and over

15 to 11%

26 weeks

12% Less than

5 weeks

45%

5 to 14

weeks

32%

2000 2010

Less than

5 weeks

20%

5 to 14

weeks

22%

15 to

26 weeks

17%

27 weeks

and over

41%