Structural unemployment leaves workers and vacancies unable to meet

Structural unemployment occurs when people seeking work cannot fill available jobs because their skills, qualifications or location do not match what employers need. It can follow lasting changes in technology, industries or the location of production, and may persist after a broader downturn because retraining or relocation takes time.

The defining feature is mismatch: vacancies can coexist with unemployment. An employer may seek workers with particular skills in one region while unemployed workers have experience in a declining occupation elsewhere.

What causes structural unemployment?

Structural unemployment can arise when the composition of labour demand changes faster than workers can adjust. The mismatch may concern skills, geography or adjustment costs between parts of the economy.

• Technological change can make particular roles or skills obsolete and raise demand for different capabilities.
• Industrial change can leave workers with specialised experience in a shrinking sector.
• Competition and globalisation can shift production to another region or country.
• Geographic mismatch can leave vacancies and job seekers in different places.
• A 2011 U.S. working paper identifies worker-mobility costs, job-mobility costs, wage-bargaining costs and differences in matching efficiency as sources of mismatch in its model.

The Federal Reserve Bank of St. Louis gives the example of an auto assembly plant moving to another city. Former workers may need to relocate to places with assembly plants or acquire new job skills.

How it differs from other unemployment

Economists commonly distinguish structural unemployment from frictional and cyclical unemployment.

• Structural unemployment results from a mismatch between workers and jobs. Addressing it may require retraining or relocation.
• Frictional unemployment is temporary unemployment while a person enters the labour force or searches for a better job.
• Cyclical unemployment is associated with job losses during recessions and is described as the deviation from the natural rate of unemployment.

The distinction matters when vacancies remain open while people are unemployed. The headline unemployment rate alone does not show how much unemployment is structural. In the United States, the official measure counts people without work who have actively sought a job in the previous four weeks; it does not provide a structural-unemployment component.

Why structural unemployment can persist

Workers may need retraining or relocation before they can match with available jobs. These adjustments can be slow, and estimates of structural unemployment depend in part on how researchers define labour-market segments, such as industries or states.

A 2011 working paper by Benedikt Herz and Thijs van Rens illustrates that caution. In its model of the United States, mismatch across industries made a modest contribution to unemployment fluctuations and mismatch across states a very small contribution, despite large estimated adjustment costs. The findings are specific to the model, period and the authors’ definition of labour-market segments.

Structural unemployment and the natural rate

In the Federal Reserve Bank of St. Louis educational framework, the natural rate of unemployment is the sum of frictional and structural unemployment. This is a conceptual framework, rather than a figure directly reported in the headline unemployment rate.

Frequently asked questions

How can technological change produce structural unemployment?

Technological change can make particular roles or skills obsolete while employers seek different capabilities. Workers displaced from the older process may need training before they can fill available roles.

Why can jobs remain open while people are unemployed?

Available workers may lack the required skills or live in a different location from the vacancies. Retraining, relocation and other adjustment costs can delay a match.

Is structural unemployment included in the natural rate of unemployment?

In the Federal Reserve Bank of St. Louis educational framework, the natural rate is the sum of frictional and structural unemployment. It is a conceptual framework rather than a figure directly reported in the headline unemployment rate.

Sources

• Structural Unemployment: Definition, Causes, and Examples — www.investopedia.com
• Structural Unemployment — bse.eu
• Making Sense Of Unemployment Data — www.stlouisfed.org
• Civilian unemployment rate — www.bls.gov