What Is Structural Unemployment?

Structural unemployment is a longer-lasting form of unemployment caused by fundamental shifts in an economy and exacerbated by extraneous factors such as technology, competition, and government policy. Structural unemployment occurs because workers' lack the requisite job skills or workers live too far from regions where jobs are available and cannot move closer. Jobs are available, but there is a serious mismatch between what companies need and what workers can offer.


Structural Unemployment

How Structural Unemployment Works

Structural unemployment is caused by forces other than the business cycle. This means that structural unemployment can last for decades and may need radical change to redress the situation. If structural unemployment is not addressed, it can increase the unemployment rate long after a recession is over and can increase the natural rate of unemployment.

For example, hundreds of thousands of well-paying manufacturing jobs have been lost in the United States over the past three decades as production jobs have migrated to lower-cost areas in China and elsewhere. This decline in the number of jobs creates a higher natural rate of unemployment. Growing technology in all areas of life increases future structural unemployment since workers without adequate skills will get marginalized. Even those with skills may face redundancy, given the high rate of technological obsolescence.

Structural unemployment is influenced by more than just the business cycle, impacted by major mismatches in the employment system.

Example of Structural Unemployment

While the 2007-2009 global recession caused cyclical unemployment, it also increased structural unemployment in the United States. As the jobless rate peaked over 10%, the average unemployment period for millions of workers rose significantly. These workers' skills deteriorated during this time of prolonged unemployment, causing structural unemployment. The depressed housing market also affected the job prospects of the unemployed, and therefore, increased structural unemployment. Relocating to a new job in another city would mean selling homes at a substantial loss, which not many were willing to do, creating a mismatch of skills and job availability.

France has also been hit hard by structural unemployment. The country faced a recession due to natural disasters and a strike movement that halted economic recovery. Structural unemployment arises from the fact that a large portion of France's workforce is participating in temporary second-level jobs with little chance of being promoted to long-term contracts, forcing them to strike. This results in a lack of job flexibility and little job mobility, sidelining many French workers who have not adapted to new tasks and skills. Labor unions and the French government are negotiating to help curb structural unemployment.

Key Takeaways

  • Structural unemployment is long-lasting unemployment that comes about due to shifts in an economy.
  • This type of unemployment happens because jobs are available but there’s a mismatch between what companies need and what available workers offer.
  • Structural unemployment can last for decades and usually requires a radical change to reverse.
  • Technology tends to exacerbate structural unemployment, marginalizing certain workers and rendering particular jobs, such as manufacturing, obsolete.