What is a 'Structural Change'

A structural change is an economic condition that occurs when an industry or market changes how it functions or operates. It shifts the assumptions used to determine courses of action or how a market trades. These changes are often sparked by new economic developments, global shifts in the pools of capital and labor, changes in resource availability due to war or natural disaster, or changes due to the supply and demand of all resources. A big factor could be from politics, with either a new regime coming to power or major overhauls in existing laws, especially with regard to business regulation and taxation.

Not only will businesses have to adapt to the new order, so will markets. For example, in the futures market, crude oil is usually in contango, which means that oil for delivery in the future is more valued than spot oil is today. If there are production cutbacks, either by decree from producing countries or political instability in the producing regions of the word, fears of scarce reserves will arise. The oil market may then undergo a structural change. Demand for near-term oil may increase, as people would fear lower supply levels in the future. Consequently, the market may shift to backwardation, where oil today is more valuable than future oil.

BREAKING DOWN 'Structural Change'

Innovation is a big driver behind structural change. Areas of the economy with large research and development (R&D) components can have big impacts on change. The advent of the smartphone was a huge change for both businesses and consumers as several technologies - from computers, to telephones, to flashlights - were available to everyone in a compact device. There is an app (application) for everything, including monitoring a bank or commercial account, finding information, and making purchases.

Technology and Structural Change

Agricultural advancements led to the rise of factory farming. Even labor unions caused changes in the workplace forcing companies to adapt. And now technology is causing change in service industries with online shopping, kiosks for ordering in fast food restaurants, and voice operated devices allowing people to ask questions at home and order products without the process of phone calls or even website visits.

On a country level, structural changes move them through the development process thanks to shifts from primary, to secondary, and finally to tertiary production. Technical progress is seen as crucial in the process of structural change as it involves the obsolescence of skills, vocations, and permanent changes in spending and production resulting in structural unemployment.

  1. Organizational Structure

    An organizational structure is a system for how activities are ...
  2. Structural Unemployment

    Structural unemployment is a longer-lasting form of unemployment ...
  3. Fee Structure

    A fee structure describes how an entity is to be compensated ...
  4. Accounting Change

    An accounting change is an accounting method considered a bigger ...
  5. Structured Funds

    Structured funds are a type of fund that combines both equity ...
  6. Traditional Theory Of Capital Structure

    The Traditional Theory of Capital Structure states that a firm's ...
Related Articles
  1. Trading

    An Introduction to Structured Products

    Use structured products to bring the benefits of derivatives into your traditional investment portfolio.
  2. Investing

    Peak Oil: What To Do When The Wells Run Dry

    Find out how to invest and protect your investments in this slippery sector.
  3. Investing

    How Oil Prices Impact the U.S. Economy

    Now that the United States has increased oil production through shale oil and fracking, low oil prices can harm the U.S. oil industry and its workers.
  4. Investing

    What determines oil prices?

    Changes in the price of oil aren't arbitrary. Understand the economic factors and other market forces that impact oil prices.
  5. Investing

    Investing in Oil Stocks vs. Oil Companies: What's the Difference? (USO)

    Learn about the major advantages, disadvantages and risks of investing in oil companies and investing in oil and gas exploration companies.
  6. Investing

    These 5 Countries Move the Supply of Oil

    Learn which countries are the largest source of change in the global supply of oil. Oil prices crashed in 2014 as supply increased and demand dropped.
  7. Investing

    OPEC vs the U.S.: Who Controls Oil Prices?

    In the last 100 years, pricing power for oil has swung between the United States and OPEC. What does the future hold?
  8. Investing

    Effect of Fed Fund Rate Hikes on Oil

    Find out how oil markets might react to an interest rate hike by the Federal Reserve, and why consumers and bondholders could love a rising interest rate.
  9. Investing

    Oil As An Asset: Hotelling's Theory On Price

    Not sure where oil prices are headed? This theory provides some insight.
  10. Financial Advisor

    Learn how to trade crude oil in 5 steps

    Crude oil and energy markets are specialized venues. Here are five steps to take to build consistent profits.
  1. What causes oil prices to fluctuate?

    Discover how OPEC, demand and supply, natural disasters, production costs and political instability are some of the major ... Read Answer >>
  2. How should an accountant correctly record and report a change in an accounting estimate?

    Read about how the FASB treats a change in accounting estimate and what businesses are required to report or disclose when ... Read Answer >>
  3. Why did oil prices drop so much in 2014?

    Learn the roles that decreased global demand, new supply sources in North America, and actions taken by Saudi Arabia played ... Read Answer >>
  4. How does a company's capitalization structure affect its profitability?

    Learn about capitalization structure and how the combination of debt and equity a company uses to fund operations can affect ... Read Answer >>
Hot Definitions
  1. Capital Asset Pricing Model - CAPM

    Capital Asset Pricing Model (CAPM) is a model that describes the relationship between risk and expected return and that is ...
  2. Return On Equity - ROE

    The profitability returned in direct relation to shareholders' investments is called the return on equity.
  3. Working Capital

    Working capital, also known as net working capital is a measure of a company's liquidity and operational efficiency.
  4. Bond

    A bond is a fixed income investment in which an investor loans money to an entity (corporate or governmental) that borrows ...
  5. Compound Annual Growth Rate - CAGR

    The Compound Annual Growth Rate (CAGR) is the mean annual growth rate of an investment over a specified period of time longer ...
  6. Net Present Value - NPV

    Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows ...
Trading Center