structural unemployment

What is structural unemployment?

Structural unemployment is a longer-lasting form of unemployment caused by fundamental shifts in the economy and exacerbated by external factors such as technology, competition, and government policies. Structural unemployment occurs when workers lack the necessary job skills or live too far away from areas where jobs are available. Jobs are available, but there is a serious mismatch between what companies need and what workers can provide.

key takeaways

  • Structural unemployment is long-term unemployment due to economic changes.
  • This type of unemployment occurs because, despite job opportunities, there is a mismatch between what the company needs and what the available workers provide.
  • Structural unemployment can last for decades and often requires radical change to reverse.
  • Technology tends to exacerbate structural unemployment, marginalize some workers, and make certain jobs, such as manufacturing, obsolete.

How Structural Unemployment Works

Structural unemployment is caused by forces outside the business cycle. That means structural unemployment could persist for decades, and sweeping changes may be needed to rectify the situation. If structural unemployment is not addressed, it could increase unemployment long after the recession ends, and increase the natural rate of unemployment, also known as “frictional unemployment.”

Over the past three decades, the U.S. has lost hundreds of thousands of high-paying manufacturing jobs as production jobs moved to low-cost locations in China and elsewhere. The decline in the number of jobs is responsible for the rise in the natural unemployment rate. Evolving technology in all areas of life will increase future structural unemployment, as workers without adequate skills will be marginalized. Given the high rate of technological obsolescence and the growing use of artificial intelligence (AI), even those with skills could face layoffs.

Structural unemployment is affected not only by the business cycle, but also by a severe mismatch in the employment system.

Examples of Structural Unemployment

While the 2007-2009 global recession led to cyclical unemployment, it also increased structural unemployment in the United States. As unemployment peaked above 10% in October 2009, the average period of unemployment for millions of workers rose significantly. During periods of prolonged unemployment, the skills of these workers decline, leading to structural unemployment. The sluggish housing market has also affected the job prospects of the unemployed, thus adding to structural unemployment. Moving to a new job in another city means selling a home at a huge loss, and not many people are willing to do so, creating a mismatch of skills and job opportunities.

France has also been hit hard by structural unemployment, as a large portion of the French workforce is in temporary secondary jobs with little chance of promotion to long-term contracts, forcing them to strike. This leads to a lack of job flexibility and job mobility, sidelining many French workers who are not adapted to new tasks and skills.

When President Emmanuel Macron took office in May 2017, the unemployment rate was 9.5%. He has vowed to tackle the country’s strict labour laws and make them more “business friendly”. Negotiations between unions and Macron’s government to help reduce structural unemployment are encouraging, and the trend is encouraging. France’s unemployment rate stood at 8.1% at the end of 2019, down from 8.7% at the start of the year and the lowest level since 2009. Macron’s stated goal is to reach 7% by 2022.

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