Definition
Structural unemployment is a type of unemployment caused by a mismatch between the skills that workers in the economy can offer, and the skills demanded by employers. It is often brought about by technological changes, shifts in the economy, or geographic disparities. This type of unemployment can be long term and is harder to rectify since it involves improving workers’ skills or relocating workers.
Key Takeaways
- Structural Unemployment refers to the mismatch between the skills that workers in the economy can offer, and the skills demanded by employers. This type of unemployment is often a result of technological advancements, industry evolution, or economic restructuring which displaces workers with non-transferable skills.
- This kind of unemployment is usually long-term and can lead to social issues like poverty and income inequality. It is difficult to resolve as it requires workers to learn new skills or relocate to areas where jobs are available.
- Government policies and programs can play a significant role in managing structural unemployment. These may include offering training programs, education, and career counseling to help individuals adapt to changes in the job market, and implementing policies that encourage economic diversity and technological advancement.
Importance
Structural unemployment is a critical term in finance as it refers to a form of joblessness caused by shifts in the economy, such as technological advancements or changes in the types of products that consumers demand.
This form of unemployment is not due to changes in the business cycle or temporary setbacks, but rather, an ‘industry shakeup’ where some sectors contract while others expand.
Understanding structural unemployment is key for policymakers and business leaders as its nature requires retraining or relocation of workers, which means devising effective strategies to re-skill employees, planning for adaptability and future-proofing the economy.
Failure to address structural unemployment could result in prolonged joblessness, reduced economic output, and social issues.
Hence, recognizing and working on curbing structural unemployment is vital for the overall sustained growth of the economy.
Explanation
Structural unemployment refers to a form of unemployment resulting from a mismatch between the skills that workers in the economy can offer and the skills demanded by employers. This type of unemployment often occurs, for instance, when technological advances render certain jobs obsolete, necessitating workers to retrain or acquire new skills.
The purpose of examining structural unemployment is to understand long-term trends in the job market and to identify sectors of the economy where jobs are declining or growing. Identifying structural unemployment helps policy makers and organizations design appropriate responses to tackle employment issues.
Tailored education, training programs, or benefits could be implemented to help displaced workers transition to industries where roles are growing in demand. Analysis of structural unemployment thus serves a key function in labour market policy formulation and planning.
Ultimately, managing and reducing structural unemployment is essential for economic stability and growth.
Examples of Structural Unemployment
Technological Changes: The advent of automation and digital technology has drastically altered the workforce and caused structural unemployment. For example, many manufacturing jobs in the automobile industry were replaced by robots and automated machinery. Employees who once held these jobs and lack the skills to transition into more technologically advanced roles are now structurally unemployed.
Geographic Location: Structural unemployment can also happen when an industry shuts down in a specific region. For example, many mining towns in the Appalachian region of the United States suffered severe structural unemployment when the coal industry decreased production. Since the workers’ specific skills were not in demand elsewhere in the economy and relocating can be expensive, many were left unemployed.
Economic Shifts: Economic changes can also cause structural unemployment. The decline of traditional industries such as textile manufacturing in the United States and the rise of new industries like technology and renewable energy is an example. Workers from the declining industries may not possess the necessary skills for jobs in the emerging fields, causing them to become structurally unemployed.
FAQs about Structural Unemployment
1. What is Structural Unemployment?
Structural unemployment occurs when the skills desired by employers do not match the skills of the unemployed or when the unemployed are not located where the jobs are.
2. What causes Structural Unemployment?
Structural unemployment is usually caused by shifts in the economy, improvements in technology, and workers having inadequate skills or education. It can also be caused by employees not living near the available jobs.
3. How can Structural Unemployment be reduced?
Structural unemployment can be reduced through education and training programs aimed at equipping workers with new skills, or by offering incentives to companies to provide on-the-job training. Also, relocation assistance programs can be of use.
4. What is the difference between Structural Unemployment and Cyclical Unemployment?
Cyclical unemployment is temporary and is based on the natural cycle of growth and decline in the job market. On the other hand, structural unemployment often lasts for a longer period and is caused by fundamental shifts in the economy.
5. What is the impact of Structural Unemployment on the economy?
Structural unemployment can reduce the rate of economic growth. If a high number of workers are unemployed due to structural changes, it can result in a decrease in consumer spending, which can lead to a slow-down in business growth.
Related Entrepreneurship Terms
- Economic Recession
- Job Displacement
- Labor Market
- Vocational Retraining
- Technological Changes
Sources for More Information
- Investopedia: A comprehensive source of educational content on all things finance, including in-depth articles on structural unemployment.
- International Monetary Fund (IMF): An international financial institution that provides a solid financial analysis and in-depth global insights, including topics like structural unemployment.
- Bureau of Labor Statistics: U.S. government’s site that produces a range of economic data, including studies and reports on unemployment and job market trends.
- Federal Reserve: The central bank of the United States provides a lot of resources and publications on economic issues, including unemployment.
