What is Structural Unemployment?

//What is Structural Unemployment?
What is Structural Unemployment? 2017-10-10T08:03:42+00:00

Definition: Structural unemployment is the unemployment generated from the disproportion between the supply of skilled workforce and the jobs available in the market typically casued by a shift in the economy or advances in technology.

What Does Structural Unemployment Mean?

What is the definition of structural unemployment? The rapid technological progress in the recent years has brought about a considerable change in the production methods, which take in a structural imbalance between supply and demand for labor.

The automation of production and the introduction of information technology has created high unemployment rates in traditional professions. This type of unemployment is the most difficult type of unemployment to normalize because it involves people who are unemployed because the current market cannot absorb their specialization, background or experience. Hence, the market has to adapt to the availability of production factors, energy sources, etc. in order to accommodate for a specialized workforce.

Let’s look at an example.

Example

The global financial crisis of 2008 has created record levels of unemployment, with nearly 8.3 million jobs being lost. As a result, in 2009, the unemployment rate rose to 10.1%. The housing bubble drove a recession phase in the business cycle and a huge number of foreclosures. This led to almost 50% SU for a period of six months or more. Especially people between 55 and 65 stayed unemployed for more than a year as their skills and experience became too expensive for the market.

Many of them were forced into early retirement as the new technology had replaced many traditional jobs like, for example, the newspapers; also, many of them had to acquire new skills, but they were too old for going back to school; finally, some older workers would not be willing to accept a lower-paying job.

This type of unemployment may occur between different professions, but also in the regions of a country. Another typical example is when a factory closes down. The factory workers lose their jobs and increase the SU rate because they are specialized and they possess the know-how to work in the factory.

Summary Definition

Define Structural Unemployment: Structural unemployment means there aren’t enough jobs available for a certain type of skilled workers in an economy, so many are unable to find a job.