Question

The BLS defines a job quit as a "voluntary separation initiated by an employee." The BLS estimated that there were 3.1 million job quits in March 2017 a. Economists distinguish three types of unemployment: frictional, structural, and cyclical. How would you classify unemployment caused by an increase in job quits? b. Would an increase in the number of job quits suggest that it was becoming easier or more difficult for people to find jobs? Briefly explain.

Short answer

a. An increase in job quits would mostly lead to frictional unemployment as it involves individuals transitioning between jobs. \n\nb. Typically, an increase in job quits indicates that it is becoming easier for people to find jobs, as this suggests a healthy job market where employees feel confident about finding new opportunities.

Step-by-step solution

Classification of Unemployment

The key is to understand the definitions of the three types of unemployment. Frictional unemployment is temporary and occurs when people are transitioning between jobs or are looking for their first job. Structural unemployment happens when there's an imbalance between the skills of workers and the skills required for available jobs. Last, cyclical unemployment is related to the cyclical trends in the economy such as recessions or depressions. \n\nGiven the definitions, an increase in job quits is a situation rooted from voluntary separation initiated by the employee, which is closely related to frictional unemployment. This is because when individuals quit their jobs voluntarily, they are transitioning between jobs, making them temporarily frictionally unemployed.

Analyzing the Effect on Job Market

The second part of the question requires the understanding of what an increase in job quits implies about the job market dynamics. \n\nGenerally, in a healthy job market, employees feel more confident about finding a new job, encouraging them to leave their current positions if they are dissatisfied or see better opportunities elsewhere. Therefore, an increase in job quits usually suggests that it is becoming easier for people to find jobs.

Key concepts

Frictional Unemployment

Frictional unemployment occurs when individuals temporarily leave their jobs to find new positions that better match their skills or offer improved work conditions, such as higher pay or better work-life balance. It's a natural part of the job market, representing the time gap between the cessation of one job and the commencement of another.

For instance, when individuals voluntarily quit their jobs as indicated by the Job Openings and Labor Turnover Survey (JOLTS) data provided by the Bureau of Labor Statistics (BLS), they contribute to frictional unemployment. This type of employment turnover can indicate a robust labor market where workers feel assured enough to leave their current jobs with the expectation of finding new employment swiftly.

An increase in job quits typically suggests that workers perceive the job market as favorable - there are numerous opportunities, and they are confident about securing new positions quickly. This helps economist deduce that the frictional unemployment rate might rise during periods when employees are optimistic about the labor market.

Structural Unemployment

Structural unemployment arises when there's a fundamental mismatch between the skills workers possess and the skills that employers need. This discrepancy can be the result of various factors, including technological advances, shifts in consumer demand, or globalization. Technological advancements, for example, may render certain skills obsolete, while new industries might require capabilities that the existing workforce has not yet developed.

To illustrate, when an industry experiences technological evolution, such as the transition from combustible engines to electric vehicles in the automotive sector, workers with traditional automotive skills may struggle to find employment unless they update their skill set to meet the new industry standards.

Structural unemployment is more persistent than frictional unemployment because it requires workers to retrain or acquire new skills, which can take a considerable amount of time and resources. As such, combating structural unemployment often involves educational reform, retraining programs, and sometimes geographic relocation of workers.

Cyclical Unemployment

Cyclical unemployment is directly linked to the economic cycle’s ebbs and flows. During periods of economic downturn or recession, demand for goods and services decreases, leading to reduced production and subsequently, a decline in the need for labor. This results in layoffs and higher unemployment rates.

Conversely, in times of economic upturn or boom, consumption increases, production ramps up, and more workers are needed to meet the demand, thereby reducing the cyclical unemployment rate. During such a boom, job quits might also increase, as employees find alternative employment more readily, but it's noted that cyclical unemployment is primarily driven by the business cycle, not by individual worker choices.

Measuring cyclical unemployment helps policymakers determine appropriate fiscal and monetary policies to support economic recovery. For example, during a recession, governments might increase spending or central banks might lower interest rates to stimulate economic activity and reduce the rate of cyclical unemployment.