Structural unemployment

Structural unemployment is a form of unemployment resulting from a mismatch between demand in the labor market and the skills and locations of the workers seeking employment. Even though the number of vacancies may be equal to, or greater than, the number of the unemployed, the unemployed workers may lack the skills needed for the jobs; or they may not live in the part of the country or world where the jobs are available.

Structural unemployment is a result of the dynamics of the labor market and the fact that these can never be as flexible as, e.g., financial markets.^{[citation needed]} Workers are "left behind" due to costs of training and moving (e.g., the cost of selling one's house in a depressed local economy), plus inefficiencies in the labor markets, such as discrimination or monopoly power.

Structural unemployment is hard to separate empirically from frictional unemployment, except to say that it lasts longer. As with frictional unemployment, simple demand-side stimulus will not work to easily abolish this type of unemployment.

Structural unemployment may also be encouraged to rise by persistent cyclical unemployment: if an economy suffers from long-lasting low aggregate demand, it means that many of the unemployed become disheartened^{[citation needed]}, while their skills (including job-searching skills) become "rusty" and obsolete. Problems with debt may lead to homelessness and a fall into the vicious circle of poverty. This means that they may not fit the job vacancies that are created when the economy recovers. Some economists see this scenario as occurring under British Prime Minister Margaret Thatcher during the 1970s and 1980s.^{[citation needed]} The implication is that sustained high demand may lower structural unemployment. This theory of persistence in structural unemployment has been referred to as an example of path dependence or "hysteresis."

Much technological unemployment (e.g. due to the replacement of workers by fewer workers who use machines) might be counted as structural unemployment. Alternatively, technological unemployment might refer to the way in which steady increases in labor productivity mean that fewer workers are needed to produce the same level of output every year. The fact that aggregate demand can be raised to deal with this problem suggests that this problem is instead one of cyclical unemployment. As indicated by Okun's Law, the demand side must grow sufficiently quickly to absorb not only the growing labor force but also the workers made redundant by increased labor productivity. Otherwise, we see a jobless recovery such as those seen in the United States in the early 1990s, in the early 2000s and in the two year period after the 2008 economic meltdown.

Seasonal unemployment may be seen as a kind of structural unemployment, since it is a type of unemployment that is linked to certain kinds of jobs (construction work, migratory farm work). The most-cited official unemployment measures erase this kind of unemployment from the statistics using "seasonal adjustment" techniques.

Structural unemployment is one of the five major categories of unemployment distinguished by economists. Structural unemployment is considered^[1] to be one of the "permanent" types of unemployment, where improvement is possible only in the long run.

Possible causes

Structural unemployment is caused by a mismatch between jobs offered by employers and potential workers. This may pertain to geographical location, skills, and many other factors. For example, in the late 1990s there was a tech bubble, creating demand for computer specialists. In 2000-2001 this bubble collapsed. A housing bubble soon formed, creating demand for real estate workers, and many computer workers had to retrain to find employment.^{[citation needed]}

Automation

Main article: Automation > Relationship to unemployment

Jeremy Rifkin explored the potential for a high level of structural unemployment in his 1995 book The End of Work.^[2] His prediction of the imminence of the change turned out to be too pessimistic, but the underlying trends that he identified persist and have not yet been addressed on the level of strategic policy.

Marshall Brain, a Fellow in the IEET think-tank, spoke on his projections of widespread structural unemployment as a result of automation,^[3] and the need for a basic income guarantee, at the Singularity Summit in San Jose, CA on October 25, 2008.

Martin Ford, in The Lights in the Tunnel: Automation, Accelerating Technology and the Economy of the Future,^[4] argues that most jobs in the economy will ultimately be automated via advancing technologies such as robotics and artificial intelligence. In Ford's view, this process is likely to begin not in the far distant future (which most humans don't care about), but sooner than conventional wisdom thinks, because many skilled jobs that people tell themselves are "safe" from a combination of offshoring and automation are actually no "safer" than factory jobs (the book explains the details of why). Ford's analysis shows this creating first naggingly high chronic unemployment levels (8-15%) and sluggish consumer demand and confidence, and later possibly precipitating a major economic crisis.

Possible solutions

Ford and others have offered possible solutions that would prevent that from happening by decoupling income (and thus consumer confidence and purchasing power) from employment as defined by the current labor market.

References

Bibliography

Ford, Martin R. (2009), The Lights in the Tunnel: Automation, Accelerating Technology and the Economy of the Future, Acculant Publishing, ISBN 978-1448659814.
Rifkin, Jeremy (1995), The End of Work: The Decline of the Global Labor Force and the Dawn of the Post-Market Era, New York: Tarcher–G.P. Putnam's Sons, ISBN 978-0874777796.