Structural unemployment and frictional unemployment are two different types of unemployment that occur in an economy. Frictional unemployment is always seen in an economy and occurs during the period when workers are searching for jobs. Conversely, structural unemployment is caused by shifts in the economy, which makes it difficult for workers to find employment.
Frictional unemployment occurs during a period when workers are searching for new employment or transitioning from their old jobs to new jobs. It is considered voluntary unemployment because workers choose to remain unemployed rather than take the first job they are offered. Thus, frictional unemployment is usually present in an economic system because some people always search for new jobs.
For example, a recent college graduate is searching for jobs and expects he is not likely to find a job within one year due to his lack of experience. However, he gets offers for jobs that are not in the field he studied. Due to the jobs not being the type of work he is looking for, he rejects these offers. Therefore, this period is known as frictional unemployment.
Contrary to frictional unemployment, structural unemployment is a type of long-term unemployment caused by shifts in the economy. It occurs when there is an oversupply of jobs and people are willing to work, but the people searching for work are not qualified for these jobs. Some causes of structural unemployment are technological advances and decline in an industry.
For example, technological advances can cause some types of skilled laborers to become obsolete. When new technology replaces previously skilled workers, they usually do not have the skills for different positions. Assume a data analyst at an investment bank has been working in the field for over 20 years. However, during those two decades, he did not keep up with the technological advances of data analysis and did not learn to program.
His job is easily programmable, and programs can analyze big data faster than he did. Since the worker is not qualified for other data analyst jobs, which require extensive programming skills, he experiences structural unemployment.
Structural unemployment can also be caused by a decline in an industry. For example, assume the prices of crude oil have been on the decline over the past year. Therefore, shale oil drilling companies have also been on the decline and losing money on their total investments due to the weakened oil industry.
To combat operating at a loss, the shale oil drilling companies must lay off many of their workers. The skilled workers in the drilling field do not have the skills to perform other jobs in emerging industries and markets. Consequently, the decline in this industry can lead to structural unemployment.
(For related reading, see: The Cost of Unemployment to the Economy.)