Which statement best defines frictional unemployment?

• A. Unemployment that arises from the time it takes for workers to search for and match with new jobs, including transitions between jobs or entry into the labor force.
• B. Unemployment caused by decreases in aggregate demand during economic downturns.
• C. Unemployment that occurs because real wages are kept above the market-clearing level by minimum wages, unions, or efficiency wages.
• D. Unemployment caused by a long-run decline in demand for certain skills due to technological change or shifts in consumer preferences.

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the concept of frictional unemployment. It refers to the short-term unemployment that occurs when workers are transitioning between jobs or entering the labor force for the first time.
2. Step 2: Recognize that frictional unemployment is a natural part of a dynamic economy where workers search for jobs that best match their skills and preferences.
3. Step 3: Differentiate frictional unemployment from other types such as cyclical unemployment (caused by economic downturns), structural unemployment (caused by long-term changes in the economy), and unemployment due to wage rigidities (like minimum wages or unions).
4. Step 4: Identify that frictional unemployment arises specifically from the time lag involved in job search and matching, not from economic recessions or wage policies.
5. Step 5: Conclude that the best definition of frictional unemployment is the one emphasizing the time it takes for workers to find and match with new jobs, including transitions between jobs or entry into the labor force.