What is Structural Unemployment?
Structural unemployment is a long-term, persistent form of unemployment that arises due to fundamental changes in an economy, coupled with elements like technological advancements, international competition, and government policy. It manifests when workers lack the skills needed or are geographically removed from job-rich areas. while jobs are abundant, there is a significant mismatch between job requirements and worker capabilities.
Key Takeaways
- Structural unemployment represents enduring joblessness due to shifts in the economy.
- The issue arises from mismatches between job openings and worker skills, rather than a simple scarcity of jobs.
- This type of unemployment can persist for decades, often requiring radical changes to remedy.
- Technological progress often exacerbates structural unemployment, rendering specific jobs, such as those in manufacturing, obsolete.
- Structural unemployment is more severe compared to cyclical, frictional, or seasonal unemployment.
Exploring How Structural Unemployment Works
Structural unemployment originates from factors beyond the regular economic cycle, meaning it can persist for extended periods and might need extensive reforms to address. If left unaddressed, it can spike unemployment rates long after a recession ends and increase the natural rate of unemployment.
In the last thirty years, the U.S. experienced a loss of numerous well-paying manufacturing jobs as production moved to more cost-effective regions like China, escalating the natural unemployment rate. Moreover, technological advancements predictably lead to higher future structural unemployment as workers without up-to-date skills are marginalized.
Major Causes of Structural Unemployment
Several common triggers behind structural unemployment, include technological evolutions, poor training, lack of education programs, competition, and globalization.
Technological advancements often lead to job obsolescence as industries adopt new processes. Businesses seek cost-effective operations, thus reducing job roles.
Insufficient training or education programs contribute significantly. Without adapting to new business practices, workers may continue facing unemployment.
Global competition also plays a role. Differences in global wage rates entice companies to offshore manufacturing, often hiring less costly foreign workers instead of more expensive domestic labor.
Overcoming Structural Unemployment
As a society, several ways exist to prioritize the resolution of structural unemployment resulting from industry shifts or technological progress:
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Skill Development: Continually developing professional skills keeps workers adaptable in an evolving economy.
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Professional Networking: Building a strong professional network is crucial for discovering available opportunities, especially when changing careers.
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Market Research: Understanding industry trends enables workers to foresee changes and adapt accordingly.
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Relocation: Moving to areas with higher demand for specific skill sets can enhance job security.
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Incentivizing Work: Reducing unemployment benefits might push workers to acquire new skills and seek better opportunities.
Structural vs. Other Types of Unemployment
Structural vs. Cyclical Unemployment: Cyclical unemployment reflects broader economic trends such as consumer spending and policy changes, typically having shorter durations and following economic cycles. Conversely, structural unemployment is more profound and constant, requiring extensive changes to resolve.
Structural vs. Frictional Unemployment: Frictional unemployment is more voluntary and transitional, where individuals choose to seek updated skills or work-life balance. In contrast, structural unemployment forces workers out due to economic shifts, with limited opportunity for immediate or similar employment.
Structural vs. Seasonal Unemployment: Seasonal unemployment results from temporary demand changes, like holiday seasons, which vary throughout the year. Usually short-term and voluntary, seasonal unemployment differs starkly from the long-lasting structural variety.
Cons of Structural Unemployment
The long-lasting nature of structural unemployment often leads to skill deterioration, complicating reemployment. It may enforce significant personal financial losses or require self-funded education/training, posing challenges for those already struggling.
Structural Unemployment Amidst COVID-19
The COVID-19 pandemic profoundly reshaped structural employment landscapes. Job roles, such as receptionists, product demonstrators, and event coordinators, requiring in-person interactions faced considerable transformations.
Despite a decline in overall unemployment to 3.5% by the end of 2022, structural unemployment’s true impact extends beyond these numbers due to non-job-seeking individuals affected by pandemic-induced changes.
Real-World Scenario
France’s battle with structural unemployment highlights its challenges. Many workers occupy temporary roles with minimal promotion prospects, limiting mobility and adaptation to new skills. President Emmanuel Macron’s initiatives aimed at labor reforms have shown promise, although challenges remain.
Best Example: Shift to Cell Phones
The rise of cell phones exemplifies structural unemployment, as the telecommunications shift rendered many specialized in landline technology obsolete unless they adapted to mobile industries.
Root Causes Unveiled
Structural unemployment generally follows significant operational shifts, such as technological advances or consumer behavior changes, evidenced recently by the widespread impacts of COVID-19.
Structural vs. Cyclical Unemployment: A Comparison
Typically more short-term, cyclical unemployment aligns with economic flows, whereas structural unemployment demands substantial adaptation, creating prolonged challenges.
Why Structural Unemployment Requires Attention
Overcoming structural unemployment needs deliberate, substantial actions beyond regular economic adjustments, emphasizing the need for learning new skills, industry transitions, or geographical relocations.
Final Thoughts
Structural unemployment reflects underlying economic changes and shifts, marking it as a severe form of unemployment compared to cyclical, frictional, or seasonal types. Adaptation and responsiveness are key to addressing this persistent challenge.
References
- U.S. Bureau of Labor Statistics. “Labor Force, Employment, and Unemployment, 1929-39: Estimating Methods”.
- U.S. Bureau of Labor Statistics. “TED: The Economics Daily: Unemployment in October 2009”.
- U.S. Bureau of Labor Statistics. “Schedule of Release for the Unemployment Situation”.
- U.S. Bureau of Labor Statistics. “Civilian Unemployment Rate”.
- U.S. Bureau of Labor Statistics. “The Employment Situation - December 2022”.
- Board of Governors of the Federal Reserve System. “Getting Back to a Strong Labor Market”.
- Trading Economics. “France Unemployment Rate”.
- TheLocal.fr. “Unemployment falls again - so what next for jobs and the French economy?”
- National Institute of Economic Studies. “In Q3 2022, the Unemployment Rate Was Virtually Stable at 7.3%”.
