Definition: Structural unemployment is a more permanent level of unemployment that's caused by forces other than the business cycle. It can be the result of an underlying shift in the economy that makes it difficult for certain segments of the population to find jobs. It's typically when there is a mis-match between the jobs available and the skill levels of the unemployed. Compare it to the other types of unemployment.
Structural unemployment can create a higher unemployment rate long after a recession is over. If ignored by policy-makers, it can then even lead to a higher natural unemployment rate. See how this occurred in U.S. Unemployment Rate by Years.
Causes of Structural Unemployment
Structural unemployment can be created when there are technological advances in an industry. This has happened in manufacturing, where robots have been replacing unskilled workers. These workers must now get training in computer operations to manage the robots and other sophisticated technology to get jobs in the same factories they worked in before.
Structural unemployment can also be caused by trade agreements, such as NAFTA. When trade restrictions were eased, many factories relocated to Mexico, leaving their former employees without a place to work.
Examples of Structural Unemployment
Structural unemployment can also occur if a country's economic growth is dependent upon industries that are in decline. For example, the newspaper industry has been in decline since 2000, as web-based advertising has taken over its source of revenue. Employees, such as journalists, printers and newspaper delivery boys, who were dependent upon that industry contribute to structural unemployment after they've been laid off. Since their skills were narrowly focused on the newspaper's method of distributing news, they have a harder time getting a different job unless they are retrained.
Farmers in emerging market economies are another example of structural unemployment. As free trade allowed global food corporations access to their markets, small-scale farmers were put out of business. They couldn't compete with the lower prices of the global firms. As a result, they headed to cities in search of work. This structural unemployment existed until they were retrained, perhaps in factory work.
Did the Financial Crisis Create Structural Unemployment?
The financial crisis of 2008 created record levels of unemployment, as 8.3 million jobs were lost. By 2009, the unemployment rate had risen to 10.1%. Housing, which usually drives the expansion phase of the business cycle, was suppressed by a wave of foreclosures. As a result, nearly half the unemployed were out of a job for six months or more. This created structural unemployment, as their skills and experience started to become outdated.
This hit the older jobless person the most. Although younger workers were more likely to be unemployed, they weren't that way for long. They either found a low-paying job more quickly, or went back to school, dropping out of the labor force altogether. Their unemployment duration was bad enough, at 19.9 weeks, but less than the older unemployed.
Those between 55-64 were out of work for 44.6 weeks, or almost a year. Those over age 65 looked for work 43.9 weeks before finding a job or just giving up -- and being forced into early retirement. Why? There were five reasons:
- Older workers were more likely to have been in industries, like newspapers, that were being replaced by new technology.
- They were less likely to go back to school.
- They were less able to move to find a new job because they owned their own home. The depressed housing market meant they'd be more likely to lose money, or default on an upside-down mortgage, if they did try to sell.
- Many older workers might not be willing to take a lower-paying job.
- Older workers faced unacknowledged age discrimination.
Impact of Structural Unemployment on the Post-Recession Economy
This structural unemployment means that the mis-match between jobs requiring technical skills and the long-term unemployed, older worker without those skills will lead to greater income inequality in the U.S. It will exacerbate the discrepancy between the technically skilled, prosperous workforce and those without those skills, who have to settle for low-paying, transitory jobs.
Furthermore, a Kauffman Foundation survey of fast-growing private companies showed 40% said that difficulties in finding skilled workers was a bigger obstacle to growth than lack of demand. (Source: FT.com, Skills Gap Hobbles U.S. Employers, December 13, 2011)
Second, many older unemployed will rely more heavily, and sooner, on Social Security and Medicare than they would have if they still held jobs. Many of them might draw down Social Security at 62 instead of waiting for larger payouts at 65 or older. This will weigh heavily on the Federal budget, already facing record levels of debt. (Article updated September 28, 2013)
Also Known As: structural unemployment rate