Structural unemployment is an economic term used to describe a mismatch between the skills of available workers and the jobs that need to be filled. It occurs when the demand for certain labor exceeds the supply, leaving workers unable to find employment.
Structural unemployment can be caused by several factors, such as technological advances, changes in customer demand or preferences, and government policies.
Although there are various job opportunities, a mismatch still exists between what employers need and the skills potential workers can offer.
Examples of structural unemployment may include layoffs due to automation or outsourcing jobs to other countries, the loss of a position due to changing consumer preferences, and so on.
Such unemployment has long-term effects on businesses and the economy as a whole, resulting in lower productivity, reduced wages and salaries, and slower economic growth.
Definition of Structural Unemployment
Structural unemployment is a type of economic inactivity that arises when the skills and/or geographical location of available workers do not match up with the demands of businesses (Janoski et al., 2014).
Technological advancements, consumer demand or preferences changes, and government policies can cause this mismatch.
Structural unemployment occurs because, while there are available jobs, the skills employers need and job seekers can provide do not align. Thus, the potential for employment is not realized (Orlandi, 2012).
In simple words, structural unemployment occurs when there is a lack of demand for certain skills, leading to an imbalance in the job market.
Structural unemployment can have long-term negative effects on businesses and the economy as a whole. It can lead to lower productivity, reduced wages and salaries, and slower economic growth.
10 Examples of Structural Unemployment
- Layoffs due to automation: In recent years, technological advancement has led to the automation of many jobs. Automated systems are replacing human labor in many industries, resulting in people being laid off due to their lack of knowledge or experience with the new technology.
- Outsourcing of jobs to other countries: With increased globalization, many companies are outsourcing their operations to countries where labor is cheaper. It has resulted in job losses in the countries they were originally based in, leading to structural unemployment.
- Loss of positions due to changing consumer preferences: In some cases, the changing needs of consumers can lead to structural unemployment. For instance, if a company can no longer meet the demand for a certain product, the positions related to its production may become obsolete, leaving workers unemployed.
- Lay offs due to shifting industrial structure: Over time, certain industries can become obsolete as new ones take their place. This shift in industrial structure can lead to structural unemployment, as workers may not have the skills to transition to the new industry.
- Unemployment caused by discrimination: Structural unemployment can be caused by discrimination by employers against certain groups of people. For example, if employers decide to only hire certain genders or ethnicities, those that do not fit the criteria may be left unemployed.
- Layoffs due to skills mismatch: As technology advances, employers may need workers with different skills than currently available. It can lead to a gap in the job market, resulting in structural unemployment.
- Loss of positions due to changes in government policies: The government can play a role in creating structural unemployment. For instance, if the government decides to reduce funding for certain programs, this can lead to job losses in the affected sectors.
- Seasonal unemployment: In some cases, certain types of jobs may only be available during certain parts of the year. It can lead to seasonal unemployment, with workers not having enough work opportunities during certain months.
- Structural unemployment due to lack of education: If workers do not have the necessary qualifications for available jobs, they may be unable to find work, leading to structural unemployment.
- Unemployment due to the emergence of new industries: With the emergence of new industries, workers may not have the necessary skills to transition into them. It can cause structural unemployment as businesses cannot find qualified workers.
Frictional vs. Cyclical vs. Structural Unemployment
Unemployment is a common problem faced by all countries. However, it is important to understand the different types of unemployment – frictional, cyclical, and structural – to develop appropriate solutions.
- Frictional unemployment occurs when workers are in between jobs and are actively looking for a new one. It is generally considered to be a natural and unavoidable part of the job market.
- Cyclical unemployment is caused by economic downturns, and it occurs when businesses are unable to find enough demand for their products or services. It is usually temporary and can be addressed through economic stimulus programs.
- Structural unemployment is a more permanent form of unemployment that is caused by changes in the economy and technology. It can be due to automation, outsourcing, changing consumer preferences, shifts in industrial structure, and so on (Schneider, 2022).
Causes of Structural Unemployment
Structural unemployment is an unfortunate reality in today’s economy, with many workers unable to find employment due to long-term changes in the job market. Here are five of the most common causes of structural unemployment:
1. Tech-driven automation
The emergence of new technologies, such as robotics and artificial intelligence, can lead to job losses in certain sectors as machines replace human labor (Franz, 2012). Consequently, many positions become obsolete, leaving workers unemployed.
2. Outsourcing of jobs
Businesses can choose to outsource certain processes and functions to external providers, resulting in job losses for local workers (Janoski et al., 2014).
In addition, it can cause structural unemployment as employees may not have the knowledge or skills required to transition into other industries.
3. Globalization and shifts in industrial structure
The process of globalization has led to the relocation of certain industries, resulting in job losses for certain sectors. As industries are restructured and move to other countries, workers in the affected areas may be unable to find employment elsewhere.
4. Changes in consumer preferences
As consumer preferences change, certain industries may become obsolete or require fewer workers (Franz, 2014).
For example, suppose people begin to prefer streaming services over cable TV. In that case, it may lead to job losses in the broadcasting industry.
5. Government policy
The decisions of governments can often alter employees’ capabilities to fulfill their roles or compel organizations to move operations overseas (Janoski et al., 2014).
Suppose professionals are not allowed to adjust to the ever-evolving landscape. In that case, they can soon find themselves unemployed and unable to develop further skills.
Ways to Overcome Structural Unemployment
While structural unemployment is an unavoidable part of the job market, there are ways to address its effects. Here are five strategies for overcoming structural unemployment:
1. Invest in skill development
As the economy progresses and evolves, workers who don’t stay abreast of new developments or hone their skills may face structural unemployment as their former job roles are no longer in demand.
To ensure that you remain employable, updating your competencies and continually cultivating professional development opportunities is essential (Janoski et al., 2014).
Giving workers access to training and retraining opportunities can help them develop the skills needed to transition into other industries. In addition, governments can incentivize businesses to invest in skill development programs for their employees.
2. Research market trends
Workers and businesses should stay abreast of changes in the job market to identify potential areas of opportunity. It can help them anticipate major changes so they can adjust their skills and ensure they stay relevant.
As individuals become more informed about their profession, they can get a clearer idea of what that industry will be like in the years to come.
In some circumstances, workers may discover that their job could soon become obsolete and, as such, should look for other opportunities to ensure stability.
3. Build flexible career pathways
Having a wide range of skills and the ability to adapt can help workers overcome structural unemployment. It is important to be aware of the ever-changing job market and to be prepared to transition into new roles as needed (Janoski et al., 2014).
Flexible career pathways can help employees switch jobs more easily, as they already have the necessary qualifications and experience to secure a new position.
For some workers, relocating to areas with more job opportunities may be the best option. It can help them find a new job more quickly, as they will no longer be competing with local job seekers.
However, relocating may not always be the best option depending on an individual’s circumstances. Therefore, before making this decision, it is important to consider the costs and risks associated with moving away from home.
5. Decrease unemployment benefits
Decreasing the number of available unemployment benefits can motivate the unemployed to take any job they can find and build their skills. It not only helps them become more employable and better equipped to transition into other jobs but also encourages businesses to hire new talent (Franz, 2014).
However, this measure should be taken with caution, as reducing unemployment benefits can lead to a decrease in purchasing power and overall economic decline.
Therefore, governments should consider the possible effects of reducing benefits before taking any action.
Structural unemployment is a type of unemployment caused by changes in the economy or workplace. For example, the introduction of technology and automation, the globalization of markets, or a shift in consumer demand can cause structural unemployment.
Structural unemployment is an unavoidable part of the job market, but it doesn’t have to be paralyzing. With proper education and training, workers can be prepared to transition into new roles as the priorities and demands of the job market change.
By investing in skill development, researching market trends, building flexible career pathways, relocating, and responsibly decreasing unemployment benefits, workers can be better able to navigate the ever-changing job market.
Franz, W. (2012). Structural unemployment. Springer Science & Business Media.
Janoski, T., Luke, D., & Oliver, C. (2014). The causes of structural unemployment. John Wiley & Sons.
Orlandi, F. (2012). Structural unemployment and its determinants in the EU countries. Economic and Financial Affairs, 1–35. https://doi.org/10.2765/26367
Schneider, G. (2022). Macroeconomic principles and problems. Routledge.