Structural unemployment

Structural unemployment is a form of unemployment caused by a mismatch between the skills that workers in the economy can offer, and the skills demanded of workers by employers (also known as the skills gap). Structural unemployment is often brought about by technological changes that make the job skills of many of today's workers obsolete, and can be addressed by either providing better information to workers who are structurally unemployed or by retraining these workers to fill new jobs that are in higher demand in the economy.

For example, in the 1970s automobile assembly lines employed people to make welds on cars being produced. When automation replaced those workers with robots in the 1980s, there was no longer the same demand for welders among manufacturers in the automobile producing states. However, at the same time, there was a strong demand for welders in other sectors of the economy (such as the oil industry) and in other parts of the country (such as Alaska and the Oil Patch states). If welders laid off in the auto industry were informed of these job opportunities (and were sufficiently mobile) they could find employment and would no longer be unemployed.

Another way of addressing structural unemployment would be retraining workers with obsolete job skills to work in fields that need workers with a different set of skills. When welders on automobile assembly lines were replaced by robots, the demand for welders went down, but the demand for people to maintain and program automobile assembly line robots went up. Workers who lost their jobs as welders on assembly lines when robots were introduced could be retrained to maintain and program those same robots. Those workers who were able to successfully retrain to maintain and program assembly line robots would no longer be unemployed, and less structural unemployment would exist in the economy.

Structural unemployment is one of several major categories of unemployment distinguished by economists, including frictional unemployment, cyclical unemployment, and classical unemployment.

Because it requires either migration or re-training, structural unemployment can be long-term and slow to fix.^[1]

Causes and examples

Further information: Technological unemployment and Productivity improving technologies (economic history)

From an individual perspective, structural unemployment can be due to:

Inability to afford or decision not to pursue further education or job training
Choice of a field of study which did not produce marketable job skills
Inability to afford relocation
Inability to sell a house (for example due to the collapse of a real estate bubble or of the local economy)
Decision not to relocate, in order to stay with a spouse, family, friends, etc.

From a larger perspective, there can be a number of reasons for structural unemployment across large numbers of workers:

Technological obsolescence makes a specific expertise useless. For example, manual typesetters disappeared with digitization of printing plate production.
Productivity increases reduce the number of workers (with the same or similar skills) needed to satisfy demand.
New technology significantly increase productivity, but requires a fewer number of higher-skilled workers. For example, fewer agricultural workers are needed when the work is mechanized; those that remain must be trained to operate equipment. Another common example is the use of industrial robots to automate manufacturing.
Competition causes the same jobs to move to a different location, and workers do not or cannot follow. Examples:
- Manufacturing jobs in the United States moved from what are now called Rust Belt cities to lower-cost cities in the South and rural areas.
- Globalization has caused many manufacturing jobs to move from high-wage to low-wage countries.
- Free trade agreements can cause jobs to move as competitive advantage changes.

Large-scale changes in the economy can be particularly challenging. For example, if a large company is the only employer in a given industry for a certain city, when it closes workers will have no competing company to move to, and the local education system and government will be burdened with many people who need job re-training all at once (possibly at the same time the local economy fails to create new jobs due to decreased overall demand).

Employers may also reject workers for reasons unrelated to skills or geography, so for example structural unemployment can also result from discrimination.

While temporary changes in overall demand for labor cause cyclical unemployment, structural unemployment can be caused by temporary changes in demand from different industries. For example, seasonal unemployment often affects farm workers after harvesting is complete, and workers in resort towns after the tourist season ends. The dot-com bubble caused a temporary spike in demand for information technology workers, which was suddenly reversed in 2000-2001.

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."

Debates

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 governmentally 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."^[2] 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.

Management professor Peter Cappelli blames poor human resource practices for complaints that not enough qualified job applicants are found, such as replacing skilled HR workers with software that is less capable of matching resumes that exhibit the right combination of skills but without word-for-word alignment with a job posting. (This actually may be a form of frictional unemployment if a match will eventually be made, perhaps with a different employer.) Cappelli also points to a decrease in apprenticeships and hiring from within an organization. Instead, companies attempt to avoid the time and cost of on-the-job training by hiring people from who already have experience doing the same job elsewhere (including at a competitor).^[3]

References

↑ "Structural unemployment crisis stalking U.S. economy". Reuters. October 6, 2009.
↑ Robert Schenk. CyberEconomics: “Overview: Resource Markets.” Accessed June 29, 2012
↑ Peter Cappelli (2012). Why Good People Can't Get Jobs: The Skills Gap and What Companies Can Do About It. Wharton Digital Press. ISBN 978-1613630143.

Bibliography

Ford, Martin R. (2009), The Lights in the Tunnel: Automation, Accelerating Technology and the Economy of the Future, Acculant Publishing, ISBN 978-1448659814. (e-book available free online.)
Rifkin, Jeremy (1995), The End of Work: The Decline of the Global Labor Force and the Dawn of the Post-Market Era, New York: Tarcher–G.P. Putnam's Sons, ISBN 978-0-87477-779-6.