What is structural unemployment? This can be an employment term that you hear thrown around when discussing the current situation regarding the economy. However, it’s important to understand what structural unemployment means, as well as what causes it. Understanding these two factors can help you better understand what you can expect from unemployment in the future.
What is structural unemployment? In laymen’s terms, structural unemployment occurs when there isn’t enough labor force to keep up with the economic system. The lack of available workers has two effects: One, companies are not going to hire new workers; two, those workers that are hired will receive lower wages than those who remain unemployed. Structural Unemployment is often caused by technological advances that make some tasks obsolete for most workers. It is also caused by the decline in education levels among American workers.
The above symptoms can occur in a variety of situations. Recession unemployment, permanent unemployment, and structural unemployment all affect the same portion of the population. Those individuals that have seen a decrease in their income and employment can fall into this category, whether they have chosen to take an economic fall, voluntarily or not. When comparing recession unemployment to structural unemployment, it is important to consider how many people fall into each category, because some people may not even qualify for unemployment insurance due to a lack of experience.
So, how does structural unemployment affect the overall business cycle? If too few workers are available for available jobs, then businesses aren’t going to invest their money into it. Instead, the money is redirected towards training, paying new employees, and downsizing existing jobs. When there are too many positions, though, businesses tend to invest their profits into short-term projects and products.
Due to structural unemployment, an economy suffers from a short-term contraction in activity. When this occurs, the overall economic outlook sours and forecasters are unable to predict a rapid recovery. They are instead forced to wait for a period of time before estimating an upward turn in the overall economy. This is what is commonly referred to as a recession.
Short-term indicators of structural unemployment can be found in several ways. One is the difficulty of locating jobs that are available in areas that are currently undergoing growth. There can be shortages of certain types of jobs in certain areas due to geographic immobility. In addition, workers that decide to move to a different area or industries temporarily will create shortages as well.
Another way structural unemployment affects an economy is in how it affects new job creation. When older workers choose to leave their jobs and seek employment elsewhere, the demand for new job openings will be lower. In response to this, some businesses may pass on some of their costs associated with training new employees. In fact, if there is any kind of retraining or refresher course available, it may not be used to hire workers because the cost would be higher than training a new employee who already has the skills and experience.
Economic policy makers have been attempting to prevent structural unemployment by preventing certain industries from experiencing such an imbalance in the number of people searching for employment. One strategy they use is through skill and industry mismatches. Skill mismatches occur when two similar industries with roughly similar employment practices are paired together. For instance, many industries may only hire individuals with a high school diploma; others may hire individuals with technical or vocational degrees. When companies create an imbalance like this, they may pass on part of their costs associated with training new employees.