Association of Chartered Certified Accountants (ACCA) Certification Practice Test

What economic condition leads to frictional unemployment?

1. A mismatch of skills

2. Insufficient market demand

3. Time taken by individuals to find jobs

4. Higher minimum wage laws

The correct answer is: Time taken by individuals to find jobs

Frictional unemployment arises from the time individuals spend searching for new employment or transitioning between jobs. This type of unemployment is considered a natural aspect of a healthy economy, as it reflects the movement of workers within the labor market, whether due to voluntary job changes or recent entrants seeking their first job. The correct answer highlights the inherent time lag in the job search process. Even in a robust economy, individuals may experience frictional unemployment as they assess their options, relocate, or match their qualifications with job openings. This is typically not a reflection of economic instability but rather an indication of individuals seeking positions that better align with their skills and preferences. In contrast to this, a mismatch of skills relates more to structural unemployment, where there is a disconnect between the skills possessed by workers and the skills needed for available jobs. Insufficient market demand can lead to cyclical unemployment, where overall economic downturns result in widespread job loss. Finally, higher minimum wage laws may contribute to unemployment in certain contexts, often influencing employer hiring decisions, but this issue typically aligns more with structural or policy-related unemployment rather than frictional unemployment.