Structural unemployment is something that can occur in almost any industry. Understanding the causes of structural unemployment can assist you in identifying positions that may experience this type of unemployment, allowing you to find a job with a stable future.
In this article, we will define structural unemployment and its causes, compare it to other types of unemployment, provide examples of structural unemployment, and discuss some strategies for avoiding or overcoming structural unemployment.
What is Structural Unemployment?
Structural unemployment is a type of unemployment caused by a mismatch between the skills of the unemployed and the jobs available in the market. Structural unemployment is a long-term condition caused by fundamental economic changes.
Because of the long-term effects and difficulties associated with overcoming the issue, structural unemployment is a significant economic problem. It has the potential to raise the natural unemployment rate. However, it is not always an indicator of an economic downturn because it can occur during periods of economic growth.
How Structural Unemployment Works
Other than the business cycle, structural unemployment is caused by external forces. This means that structural unemployment can last for decades and that radical change may be required to correct the situation. If structural unemployment is not addressed, it can raise the unemployment rate long after the recession has ended, as well as raise the natural rate of unemployment, also known as “frictional unemployment.”
Over the last three decades, hundreds of thousands of well-paying manufacturing jobs have been lost in the United States. Production jobs have migrated to lower-cost areas in China and elsewhere. This decrease in the number of available jobs has resulted in a higher natural rate of unemployment. Growing technology in all areas of life raises the prospect of future structural unemployment, as workers with insufficient skills are marginalized. Even those with skills may face redundancy, given the high rate of technological obsolescence and the growing use of artificial intelligence (AI).
Examples of Structural Unemployment
While the global recession of 2007-2009 resulted in cyclical unemployment, it also increased structural unemployment in the United States. As the unemployment rate surpassed 10% in October 2009, the average length of unemployment for millions of workers increased significantly.
These workers’ skills deteriorated during this period of prolonged unemployment, resulting in structural unemployment. The weak housing market also harmed unemployed people’s job prospects, increasing structural unemployment. Relocating to a new job in a different city would have required selling a home at a significant loss, which few people were willing to do, resulting in a mismatch of skills and job availability.
What Causes Structural Unemployment?
Technological advances in an industry are one cause of structural unemployment. This is common in the manufacturing industry. Robots have replaced unskilled workers. These workers frequently need computer training to stay in the same industry.
Trade agreements, such as the North American Free Trade Agreement, are a secondary cause. Many factories relocated to Mexico when NAFTA first lifted trade restrictions. They left their former employees without a job. The agreement proved to be one of the underlying causes of unemployment in the country.
Industries Impacted by Structural Unemployment
Technological advances in an industry are one cause of structural unemployment. This is common in the manufacturing industry. Robots have replaced unskilled workers. These workers frequently need computer training to stay in the same industry.
Trade agreements, such as the North American Free Trade Agreement, are a secondary cause. Many factories relocated to Mexico when NAFTA first lifted trade restrictions. They left their former employees without a job. The agreement proved to be one of the underlying causes of unemployment in the country.
How the Financial Crisis Made Structural Unemployment Worse
The financial crisis of 2008 created record levels of unemployment. Over 8.7 million jobs were lost. By October 2009, the unemployment rate had risen to 10.2%. Housing, which usually drives the expansion phase of the business cycle, was suppressed by a wave of foreclosures. As a result, almost half the unemployed were out of a job for six months or more. As their skills and experience became outdated, cyclical unemployment led to structural unemployment.
Although younger workers were more likely to be unemployed, they weren’t that way for long. They either found a low-paying job or returned to school, dropping out of the labor force altogether. Their unemployment duration was bad, at 19.9 weeks, but less than the older unemployed.
Those aged 55 to 64 were out of work for 44.6 weeks—almost one year. Those over age 65 looked for work for 43.9 weeks before finding a job. Many just gave up. That forced them into early retirement.
How Structural Unemployment Affects You
Structural unemployment exacerbates income inequality in the United States. This is because the older, long-term unemployed worker lacks the necessary technical skills. Industries evolve while unemployed. This creates a mismatch between the unemployed and the jobs being created.
Many older unemployed people rely more heavily on Social Security and Medicare than they would if they were working. Many people may begin collecting Social Security benefits at the age of 62 rather than waiting until they are 65 or older. This could significantly impact the federal budget, and the country already records debt levels.
How to Overcome Structural Unemployment?
It is not easy to overcome structural unemployment. Due to the nature and scale of the changes in an economy, policymakers frequently cannot directly address the problem. However, the following actions may be considered to improve the situation:
1. Education and training
The government provides support in the form of education or training to the unemployed to increase their skills for finding a job in a new industry.
2. Relocation subsidies
The government subsidizes relocating unemployed individuals from regions with high structural unemployment to other regions. In addition, the government can offer subsidies or incentives to companies to create job opportunities in depressed regions.
3. Decrease or remove unemployment benefits
The government can remove unemployment benefits to incentivize the unemployed to find a job as soon as possible.
Conclusion
Structural unemployment results from a mismatch between workers’ skills and available jobs in the market. Some workers are finding it difficult to work in the economy due to structural unemployment. Nowadays, manufacturing and production have shifted to machine-oriented jobs, eliminating the need for human resources in the organization. However, the duration of this unemployment is usually moderate.
Structural unemployment usually takes one to two years to resolve, but it can be slightly longer. As a result, training programs should be implemented to keep workers up to date on available jobs in order to address the problem of structural unemployment on time.
