Structural unemployment

Structural unemployment is a form of unemployment where, at a given wage, the quantity of labor supplied exceeds the quantity of labor demanded, because there is a fundamental mismatch between the number of people who want to work and the number of jobs that are available. The unemployed workers may lack the skills needed for the jobs, or they may not live in the part of the country or world where the jobs are available. Structural unemployment is one of the five major categories of unemployment distinguished by economists. Structural unemployment is generally considered to be one of the "permanent" types of unemployment, where improvement if possible, will only occur in the long run.[1]

Types

Obsolescence of a single technology will make specific expertise useless. For instance, jobs for manual typesetters disappeared with digitalization of printing plate production.

Increase of the efficiency in an economic sector reduces the number of required workers. For instance, fewer agricultural workers are needed when the work is mechanized. Closely related is the increased demand for skill, training and formal education, as the new machinery often requires fewer, but higher-skilled workers. Due to this, unskilled laborers are the first to go unemployed, and the most likely to stay so.

Reduced relative competitiveness of an industry in a country can also lead to structural unemployment. Basic manufacturing in the West has been hit by this. Lower wages in less developed countries have attracted manufacturing away from the West.

Market inefficiencies can also cause structural unemployment. In an efficient market the jobseeker and an employer wishing to recruit can connect, whereas in an inefficient market this is impeded, for instance due to discrimination.

Effects

Bankruptcies of large companies are often devastating for the economy of towns where a single site accounts for much of the local income. The local economy does not necessarily generate jobs fast enough to employ the laid-off workers, forcing them to either move or go unemployed. Many of the displaced workers are "left behind" due to costs of training and moving (e.g., the cost of selling one's house in a depressed local economy) and inability to find new jobs.

Relation to other unemployment

Structural unemployment is hard to separate empirically from frictional unemployment, except to say that it lasts longer. As with frictional unemployment, simple demand-side stimulus will not work to easily abolish this type of unemployment.

Seasonal unemployment 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: 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."

Possible causes

Structural unemployment is caused by a mismatch between jobs offered by employers and potential workers. This may pertain to geographical location, skills, and many other factors. For example, in the late 1990s there was a tech bubble, creating demand for computer specialists. In 2000-2001 this bubble collapsed. A housing bubble soon formed, creating demand for real estate workers, and many computer workers had to retrain to find employment.

The causes of structural unemployment can happen because of automation in the work place (e.g. need for higher and higher computer skills), rigidities in the labor market, such as high costs of training or in the case of US de-industrialization as manufacturing jobs are continuously lost to off-shoring.[2]

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 federally imposed minimum wage is higher than some individuals' marginal revenue product in any given job, that those individuals remain unemployed because employers legally cannot pay them what they are "worth."[3] Others believe that in such cases (for example, when a person is intellectually disabled 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.

See also

References

  1. ↑ "Structural unemployment crisis stalking U.S. economy". Reuters. October 6, 2009.
  2. ↑ "Factors in Structural Unemployment". WorldBank Blog. Retrieved 2012-08-07.
  3. ↑ Robert Schenk. CyberEconomics: “Overview: Resource Markets.” Accessed June 29, 2012

Bibliography

Further reading