Structural unemployment is an important economic concept that every person should understand. It can have a profound effect on the economy and your personal finances, so it pays to be informed about this type of unemployment. But what is structural unemployment?
Structural unemployment is a form of long-term unemployment that occurs when the skills and qualifications of people are no longer suited to the jobs available. This type of employment is typically caused by rapid changes in industry or technology, resulting in a mismatch between people’s skill sets and the current job market. The source of structural unemployment distinguishes it from cyclical or frictional unemployment, which are caused by fluctuations in demand. By better understanding structural unemployment, you can make more informed decisions to protect your financial position.
In this article, we will explain what structural unemployment is and how it impacts the economy and your own finances. So let’s get started!
Causes of Structural Unemployment
Structural unemployment is a long-term joblessness brought about by structural shifts in the economy. While cyclical unemployment, otherwise known as ‘demand-deficient’ unemployment, occurs when there are not enough jobs available due to a lack of demand from consumers, structural unemployment happens when workers’ skills don’t match up with the available jobs. It can also be caused by advancements in technology and automation, changes in consumer demand, globalization, and outsourcing. Keep reading to learn more.
Technological Advancements and Automation
Technological advancements and automation have been known to disrupt traditional labor markets and cause structural unemployment. Automation has allowed robots or computers to handle complex tasks more efficiently than humans ever could. This has led to machines replacing humans in the workforce, making certain skills obsolete and creating structural unemployment.
For example, as more companies adopt automated systems, many jobs that were once performed by humans, may be replaced by machines. The most endangered positions are in the field of data collection and processing where almost all of the work can be automated, and in the field of repeated and predictable manual work. This can decrease the demand for workers with certain skills, leading to structural unemployment.
Changes In Consumer Demand
As consumer trends shift, certain types of jobs become obsolete while new ones take their place. For example, the rise of digital media has caused a decrease in print production jobs and an increase in digital marketing positions. This industry shift can cause workers to struggle to find jobs in their current area or require them to learn new skills for other professions.
For example, the rise of e-commerce has had a significant impact on brick-and-mortar retail, leading to a decline in the number of jobs in this sector. This situation can lead to structural unemployment, as workers with skills specific to the affected industry may struggle to find employment in other sectors.
Globalization and Outsourcing
Globalization and outsourcing have also had an impact on global labor markets, leading to increased competition for employment opportunities both domestically and abroad. Companies seeking to reduce costs often decide to outsource production, assembly lines, or services to countries with lower labor costs. This decreases the number of jobs and leads to structural unemployment in those sectors. Additionally, globalization can create increased competition, making it more difficult for workers in certain industries to find employment.
As technology advances, the job market increasingly demands more specialized skill sets, and workers who are unable to adapt quickly enough may find themselves unemployed as their existing skills become outdated. For example, the rise of technology has led to an increased demand for computer programmers and data analysts. If workers do not possess the required skills, they may struggle to find employment, leading to structural unemployment. Workers need to be able to consistently stay up-to-date with the latest technologies to remain competitive in today’s ever-changing job market.
It can be difficult for those affected by this type of joblessness since it takes longer than cyclical unemployment for an economy to recover, leading to long-term consequences for both individuals and businesses alike.
Effects of Structural Unemployment
This phenomenon has significant effects on both the economy and the financial well-being of individuals. In this section, we will explore the most notable effects of structural unemployment.
Impact on the Economy
The impact of structural unemployment on an economy can be devastating, causing decreased GDP growth, decreased consumer spending, and increased government spending on social programs.
1. Decreased GDP
GDP is the value of all the finished goods and services that are produced in a country during a given period of time. The first way in which structural unemployment affects an economy is through reduced Gross Domestic Product (GDP). As more individuals become unemployed, fewer goods and services are produced. Also, when workers lose their jobs due to structural unemployment, they tend to spend less, which decreases overall consumer spending.
Additionally, businesses may have less incentive to invest in the economy if there are fewer workers available with the skills they require. All this leads to a decrease in GDP, as the economy is producing fewer goods and services overall, resulting in less income for the government due to lower tax revenues as well as decreased economic output from businesses.
2. Decreased Consumer Spending
The second economic consequence of structural unemployment is that it can lead to decreased consumer spending. With fewer people employed, there is less disposable income in the economy. This means less money spent on goods and services, resulting in lower demand for products, which can affect both consumers and producers alike. For example, businesses may see a decline in sales, which can lead to a decrease in profits and a reduction in the number of employees they can afford to hire.
3. Increased Government Spending on Social Programs
Finally, structural unemployment also forces governments to spend more on social programs. This includes paying unemployment benefits to laid-off workers and offering them free job training programs.
As more individuals become unemployed, the demand for public assistance increases as more people need support to make ends meet. This puts a strain on government budgets as they are forced to expend additional funds to provide this assistance. Additionally, the government may need to invest in job training programs to help workers develop the skills needed for available jobs. These programs can be costly, leading to an increase in government spending.
Impact on Individuals
As mentioned, structural unemployment can have a significant impact on the financial well-being of individuals. The effects of structural unemployment include financial insecurity, reduced job opportunities, and lower wages. Read on.
1. Financial Insecurity
One of the most significant effects of structural unemployment is financial insecurity. When people lose their jobs due to structural unemployment, they often struggle to find new employment because they lack the skills required for available jobs. This pressures workers into accepting jobs that pay less than their previous jobs or remain unemployed for an extended period. Ultimately, workers’ financial instability results in increased debt, reduced savings, and a lower standard of living.
2. Reduced Job Opportunities
Structural unemployment can also lead to reduced job opportunities in the economy as a whole. When certain industries or sectors of the economy experience structural unemployment, the demand for workers in those areas decreases. This effect can be felt throughout the economy, as fewer workers are needed to support those industries or sectors. As a result, workers not directly affected by structural unemployment may still find it more challenging to obtain employment, as fewer job opportunities are available.
3. Lower Wages
Another effect of structural unemployment is lower wages. When there are fewer job opportunities available due to structural unemployment, workers may have to accept jobs that pay less than their previous positions. Seeing there are more workers for every available job allows employers to lower wages. Additionally, employers may feel less pressure to offer competitive wages if they know that many qualified workers are available to fill job openings.
While structural unemployment is a challenging economic phenomenon to address, policymakers need to understand its effects on the economy and work to mitigate its impact on individuals and society as a whole.
Examples of Structural Unemployment
In recent years, several examples of structural unemployment have emerged, including the decline of manufacturing jobs, the rise of the gig economy, and the impact of automation on various industries. We will explore these examples in greater detail.
The Decline of Manufacturing Jobs in the U.S.
The manufacturing sector has been hit hard over the last few decades due to automation, outsourcing, and other business decisions that have cost American workers their jobs.
The loss of manufacturing jobs is a prime example of structural unemployment.
For decades, manufacturing jobs were a significant source of employment for many Americans. However, as technology has advanced and globalization has increased, many manufacturing jobs have moved overseas or become automated. This situation has created a mismatch between the skills of the American workforce and the jobs available in the economy, leading to significant structural unemployment in the manufacturing sector. These types of losses can’t be easily replaced as they require specialized training or knowledge that may no longer be applicable in today’s economy.
The Rise of the Gig Economy
The term “gig” is a slang expression for doing a short-term or one-time job, used mainly by musicians to refer to their occasional performances. In the economy, it describes a labor market where workers are engaged in temporary, flexible jobs, and there are few opportunities for obtaining a permanent position. With more companies relying on freelancers and contractors for short-term projects rather than full-time employees, there is an increase in structural unemployment due to the lack of permanent job opportunities. This influx of low-wage, unstable work has contributed to a decline in job security among American workers.
The gig economy is often associated with the use of online platforms, such as Uber and Airbnb. While the gig economy offers workers more flexibility and independence, it also creates a discrepancy between their skills and the types of jobs available to them. Many workers in the gig economy lack the skills and qualifications required for more traditional jobs, leading to structural unemployment in other sectors of the economy.
The Impact of Automation on Various Industries
The impact of automation on various industries is a third structural unemployment example. As technology has advanced, many industries have become more automated, leading to a decline in the need for human labor. Technological advancements have allowed companies to replace certain positions with automated processes and machines. In this situation, many workers have skills incompatible with the demands of the jobs available in these industries. This can be especially damaging for low-income workers or those who may not have access to the technology needed to stay competitive in the job market.
For example, the retail industry has seen a significant decline in the need for human workers as more consumers shop online. This shift has led to structural unemployment in the retail sector, as many workers lack the skills required for jobs in other industries.
How to Address Structural Unemployment
Structural unemployment is a complex issue with various causes, and addressing it requires a comprehensive approach that considers the needs of both workers and employers. While it can be challenging to address its root causes, there are several strategies that policymakers, businesses, and individuals can use to mitigate its impact. Certain measures can be taken to address this issue, and here’s how:
Education and Training Programs
One of the most effective ways to tackle structural unemployment is to invest in workers’ education and training programs. By providing people with up-to-date skills and qualifications, they will be better equipped to compete in today’s labor market and improve their employability prospects. This could include giving unemployed individuals access to courses that provide them with the skills required to find jobs in growing sectors or to enter specific occupations.
For example, community colleges and vocational schools can offer courses in areas such as computer programming, data analysis, and advanced manufacturing to help workers develop the skills that are in high demand. Employers can also offer training programs to help workers develop the specific skills they need to succeed in their jobs.
Government Policies and Initiatives
Governments can also introduce measures that help to reduce structural unemployment. For example, they can provide targeted tax incentives for businesses that create jobs in areas with high unemployment rates or invest in infrastructure projects which create construction and engineering roles. They can also implement wage subsidies and job guarantees; these are schemes where governments pay a portion of wages while employees learn new skills, giving them an opportunity to gain valuable experience without a long-term financial commitment from employers.
Additionally, governments can provide financial support for businesses that are struggling due to structural unemployment, helping them to weather the storm and potentially restructure their operations.
Private Sector Initiatives
In addition to government policies, the private sector can play a role in addressing structural unemployment by providing opportunities for training, apprenticeships, and internships. This can give people a chance to gain new skills and experience, as well as give employers access to a more diverse pool of talent.
For example, businesses can work to identify the skills that are in high demand in their industry and invest in training programs to help workers develop those skills. They can consider offering flexible working arrangements such as job sharing, teleworking, or part-time positions, which may help those with limited availability or particular needs. They can also partner with educational institutions to provide internships and apprenticeships that help students and workers gain practical experience in their field. Additionally, businesses can work to diversify their operations to reduce their dependence on industries that are experiencing structural unemployment.
Overall, there are many ways in which structural unemployment can be addressed. By investing in education and training programs, introducing government initiatives, and encouraging private sector initiatives, it is possible to provide unemployed individuals with the skills they need to find suitable employment and help address this persistent issue.
As you can see, structural unemployment is a complex issue that has far-reaching effects on both the economy and people’s finances. But now that you know the structural unemployment definition, you have a better understanding of the whole concept. The root cause of this type of joblessness often lies in changes to the job market due to advances in technology or shifts in global trade dynamics. It can take longer for individuals to adjust their skillset to meet the changing demands of employers, resulting in more prolonged spells of unemployment.
Governments must look at ways to provide training and education programs that can help bridge the gap between existing skills and those needed by employers. This will ensure that workers are better equipped for roles created by new technologies and remain competitive as global markets evolve over time. By addressing structural unemployment in a proactive way, we can create an environment more conducive to economic growth, better job security, and more prosperous society for all.