Structural Unemployment
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Structural unemployment is a form of involuntary unemployment caused by a mismatch between the skills that workers in the economy can offer, and the skills demanded of workers by employers (also known as the skills gap). Structural unemployment is often brought about by
technological change Technological change (TC) or technological development is the overall process of invention, innovation and diffusion of technology or processes.From ''The New Palgrave Dictionary otechnical change by S. Metcalfe.  •biased and biased techno ...
s that make the job skills of many workers obsolete. Structural unemployment is one of three categories of unemployment distinguished by
economists An economist is a professional and practitioner in the social science discipline of economics. The individual may also study, develop, and apply theories and concepts from economics and write about economic policy. Within this field there are ...
, the others being frictional unemployment and
cyclical unemployment Unemployment, according to the OECD (Organisation for Economic Co-operation and Development), is people above a specified age (usually 15) not being in paid employment or self-employment but currently available for work during the refere ...
. Because it requires either migration or re-training, structural unemployment can be long-term and slow to fix.


Causes and examples

From an individual perspective, structural unemployment can be due to: * Inability to afford or decision not to pursue further education or job training. * Choice of a field of study which did not produce marketable job skills. * Inability to afford relocation. * Inability to relocate due to inability to sell a house (for example due to the collapse of a
real estate bubble A real-estate bubble or property bubble (or housing bubble for residential markets) is a type of economic bubble that occurs periodically in local or global real-estate markets, and typically follow a land boom. A land boom is the rapid increase ...
or of the local economy). * Decision not to relocate, in order to stay with a spouse, family, friends, etc. From a larger perspective, there can be a number of reasons for structural unemployment across large numbers of workers: * Technological
obsolescence Obsolescence is the state of being which occurs when an object, service, or practice is no longer maintained or required even though it may still be in good working order. It usually happens when something that is more efficient or less risky r ...
makes a specific expertise useless. For example, demand for manual typesetters disappeared with digitization of printing plate production. *
Productivity Productivity is the efficiency of production of goods or services expressed by some measure. Measurements of productivity are often expressed as a ratio of an aggregate output to a single input or an aggregate input used in a production proces ...
increases reduce the number of workers (with the same or similar skills) needed to satisfy
demand In economics, demand is the quantity of a good that consumers are willing and able to purchase at various prices during a given time. The relationship between price and quantity demand is also called the demand curve. Demand for a specific item ...
. * New technology significantly increases productivity, but requires a smaller number of higher-skilled workers. For example, fewer agricultural workers are needed when the work is mechanized; those that remain must be trained to operate equipment. Another common example is the use of
industrial robot An industrial robot is a robot system used for manufacturing. Industrial robots are automated, programmable and capable of movement on three or more axes. Typical applications of robots include welding, painting, assembly, disassembly, pick ...
s to automate manufacturing. A study by
Carl Benedikt Frey Carl Benedikt Frey is a Swedish-German economist and economic historian. He is Oxford Martin Citi Fellow at Oxford University where he directs the programme on the Future of Work at the Oxford Martin School. Career After studying economics, his ...
and Michael Osborne found in 2013 that almost half of U.S jobs are at risk of automation. * Competition causes the same jobs to move to a different location, and workers do not or cannot follow. Examples: ** Manufacturing jobs in the
United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country primarily located in North America. It consists of 50 states, a federal district, five major unincorporated territorie ...
moved from what are now called
Rust Belt The Rust Belt is a region of the United States that experienced industrial decline starting in the 1950s. The U.S. manufacturing sector as a percentage of the U.S. GDP peaked in 1953 and has been in decline since, impacting certain regions an ...
cities to lower-cost cities in the South and rural areas. **
Globalization Globalization, or globalisation (English in the Commonwealth of Nations, Commonwealth English; American and British English spelling differences#-ise, -ize (-isation, -ization), see spelling differences), is the process of foreign relation ...
has caused many manufacturing jobs to move from high-wage to low-wage countries. **
Free trade agreement A free-trade agreement (FTA) or treaty is an agreement according to international law to form a free-trade area between the cooperating states. There are two types of trade agreements: bilateral and multilateral. Bilateral trade agreements occ ...
s can cause jobs to move as competitive advantage changes. * Political changes, for example the
collapse of the Soviet Union The dissolution of the Soviet Union, also negatively connoted as rus, Разва́л Сове́тского Сою́за, r=Razvál Sovétskogo Soyúza, ''Ruining of the Soviet Union''. was the process of internal disintegration within the Sov ...
. Large-scale changes in the economy can be particularly challenging. For example, if a large company is the only employer in a given industry for a certain city, when it closes workers will have no competing company to move to, and the local education system and government will be burdened with many people who need job re-training all at once (possibly at the same time the local economy fails to create new jobs due to decreased overall demand). Employers may also reject workers for reasons unrelated to skills or geography, so for example structural unemployment can also result from
discrimination Discrimination is the act of making unjustified distinctions between people based on the groups, classes, or other categories to which they belong or are perceived to belong. People may be discriminated on the basis of race, gender, age, relig ...
, including ableism and cultural factors such as
race Race, RACE or "The Race" may refer to: * Race (biology), an informal taxonomic classification within a species, generally within a sub-species * Race (human categorization), classification of humans into groups based on physical traits, and/or s ...
or
sexual orientation Sexual orientation is an enduring pattern of romantic or sexual attraction (or a combination of these) to persons of the opposite sex or gender, the same sex or gender, or to both sexes or more than one gender. These attractions are generall ...
. While temporary changes in overall demand for labor cause
cyclical unemployment Unemployment, according to the OECD (Organisation for Economic Co-operation and Development), is people above a specified age (usually 15) not being in paid employment or self-employment but currently available for work during the refere ...
, structural unemployment can be caused by temporary changes in demand from different industries. For example,
seasonal unemployment A season is a division of the year based on changes in weather, ecology, and the number of daylight hours in a given region. On Earth, seasons are the result of the axial parallelism of Earth's tilted orbit around the Sun. In temperate and po ...
often affects
farm worker A farmworker, farmhand or agricultural worker is someone employed for labor in agriculture. In labor law, the term "farmworker" is sometimes used more narrowly, applying only to a hired worker involved in agricultural production, including harv ...
s after harvesting is complete, and workers in resort towns after the tourist season ends. The
dot-com bubble The dot-com bubble (dot-com boom, tech bubble, or the Internet bubble) was a stock market bubble in the late 1990s, a period of massive growth in the use and adoption of the Internet. Between 1995 and its peak in March 2000, the Nasdaq Compo ...
caused a temporary spike in demand for information technology workers, which was suddenly reversed in 2000–2001. Structural unemployment is often associated with workers being unable to shift from industry to industry, but it can also happen within industries as technology changes the nature of work within a given field. This is a driver of skills gaps as technology and globalization "hollow out" many middle-skill jobs, positions that traditionally have not required a college degree.


Relation to other unemployment

Structural unemployment is hard to separate empirically from frictional unemployment, except to say that for any given individual it lasts longer. As with frictional unemployment, simple demand-side stimulus will not work to easily abolish this type of unemployment.
Seasonal unemployment A season is a division of the year based on changes in weather, ecology, and the number of daylight hours in a given region. On Earth, seasons are the result of the axial parallelism of Earth's tilted orbit around the Sun. In temperate and po ...
may be seen as a kind of structural unemployment, since it is a type of unemployment that is linked to certain kinds of jobs (construction work, migratory farm work). The most-cited official unemployment measures erase this kind of unemployment from the statistics using "seasonal adjustment" techniques. Structural unemployment may also be encouraged to rise by persistent
cyclical unemployment Unemployment, according to the OECD (Organisation for Economic Co-operation and Development), is people above a specified age (usually 15) not being in paid employment or self-employment but currently available for work during the refere ...
: if an economy suffers from long-lasting low aggregate demand, it means that many of the unemployed become disheartened, while their skills (including job-searching skills) become "rusty" and obsolete. Problems with debt may lead to homelessness and a fall into the vicious circle of poverty. This means that they may not fit the job vacancies that are created when the economy recovers. The implication is that sustained high demand may lower structural unemployment. This theory of persistence in structural unemployment has been referred to as an example of path dependence or " hysteresis."


Debates

There has been considerable debate over how much a role structural unemployment plays in the persistently high unemployment rates seen in much of the world since the 2007-09 global recession.
Narayana Kocherlakota Narayana Rao Kocherlakota (born October 12, 1963) is an American economist and the Lionel W. McKenzie Professor of Economics at the University of Rochester. Previously, he served as the 12th president of the Federal Reserve Bank of Minneapolis u ...
, then president of the Federal Reserve Bank of Minneapolis, said in a 2010 speech that as much as 3 percent of the 9.5 percent unemployment rate at the time could be the result of a mismatch. Other studies argued that a skills mismatch was a minor factor, since unemployment rose for nearly all industries and demographic groups during the "Great Recession." A Federal Reserve Bank of New York study found no strong evidence of mismatch for construction workers, a group often alleged to be prone to structural unemployment because of the regional nature of construction. Some economists posit that the minimum wage is in part to blame for structural unemployment, although structural unemployment does exist even in the absence of a minimum wage. They assert that because the governmentally imposed minimum wage is higher than some individuals'
marginal revenue product Marginal may refer to: * ''Marginal'' (album), the third album of the Belgian rock band Dead Man Ray, released in 2001 * ''Marginal'' (manga) * '' El Marginal'', Argentine TV series * Marginal seat or marginal constituency or marginal, in polit ...
in any given job, those individuals remain unemployed because employers legally cannot pay them what they are "worth." Others believe that in such cases (for example, when a person is
intellectually disabled Intellectual disability (ID), also known as general learning disability in the United Kingdom and formerly mental retardation, Rosa's Law, Pub. L. 111-256124 Stat. 2643(2010). is a generalized neurodevelopmental disorder characterized by signifi ...
or suffers a debilitating physical condition) it is the responsibility of the state to provide for the citizen in question. When a minimum wage does not exist, more people may be employed, but they may be underemployed and thus unable to fully provide for themselves. Management professor Peter Cappelli blames poor human resource practices for complaints that not enough qualified job applicants are found, such as replacing skilled HR workers with software that is less capable of matching resumes that exhibit the right combination of skills but without word-for-word alignment with a job posting. (This actually may be a form of frictional unemployment if a match will eventually be made, perhaps with a different employer.) Cappelli also points to a decrease in
apprenticeship Apprenticeship is a system for training a new generation of practitioners of a trade or profession with on-the-job training and often some accompanying study (classroom work and reading). Apprenticeships can also enable practitioners to gain a ...
s and hiring from within an organization. Instead, companies attempt to avoid the time and cost of on-the-job training by hiring people from who already have experience doing the same job elsewhere (including at a competitor).


See also

* Classical unemployment * Deindustrialization * Involuntary unemployment *
Natural rate of unemployment The natural rate of unemployment is the name that was given to a key concept in the study of economic activity. Milton Friedman and Edmund Phelps, tackling this 'human' problem in the 1960s, both received the Nobel Memorial Prize in Economic Scien ...
*
Jobless recovery A jobless recovery or jobless growth is an economic phenomenon in which a macroeconomy experiences growth while maintaining or decreasing its level of employment. The term was coined by the economist Nick Perna in the early 1990s. Causes Economi ...
*
Post-industrial society In sociology, the post-industrial society is the stage of society's development when the service sector generates more wealth than the manufacturing sector of the economy. The term was originated by Alain Touraine and is closely related to si ...
*
Reserve army of labour Reserve army of labour is a concept in Karl Marx's critique of political economy Political economy is the study of how economic systems (e.g. markets and national economies) and political systems (e.g. law, institutions, government) are l ...
* Types of unemployment


References


Bibliography

* *


Further reading

* Ganapati, Priya
Brainy Robots To Lead To Longer Unemployment Lines?
October 25, 2008. {{DEFAULTSORT:Structural Unemployment Unemployment