Structural Unemployment, Its Causes, and Examples
Why It's Harder to Find A Job Now in Some Industries
Structural unemployment refers to a mismatch between the jobs available and the skill levels of the unemployed. Unlike cyclical unemployment, it’s caused by forces other than the business cycle. It occurs when an underlying shift in the economy makes it difficult for some groups to find jobs. It is harder to correct than other types of unemployment.
By looking into the U.S. unemployment rate by years, one can track the health of the country’s economy and get a clearer picture of how structural unemployment can occur. The chart below tracks the U.S. structural unemployment from 2002 to 2015.
One cause of structural unemployment is technological advances in an industry. That often happens in manufacturing. Robots have been replacing unskilled workers. These workers must get training in computer operations if they want to keep working in the same industry. They learn how to manage the robots doing the work they used to do.
A second cause is trade agreements, such as the North American Free Trade Agreement. When NAFTA first lifted trade restrictions, many factories relocated to Mexico. They left their former employees without a place to work. The agreement proved to be one of the nation’s underlying causes of unemployment.
Technological advances have created structural unemployment in the newspaper industry. Web-based advertising has drawn advertisers away from newspaper ads. Online news media has drawn customers away from physical newspapers. Newspaper employees, such as journalists, printers, and delivery route workers, were laid off. Their skills were focused on the paper's method of distributing news. They had to get new training before qualifying for a job in the same field.
Farmers in emerging market economies are another example of structural unemployment. Free trade allowed global food corporations access to their markets. That put small-scale farmers out of business. They couldn't compete with the lower prices of the global firms. As a result, they headed to cities in search of work. This structural unemployment existed until they were retrained, perhaps in factory work.
How the Financial Crisis Made Structural Unemployment Worse
The financial crisis of 2008 created record levels of unemployment. Over 8 million jobs were lost. By October, 2009, the unemployment rate had risen to 10 percent. Housing, which usually drives the expansion phase of the business cycle, was suppressed by a wave of foreclosures. As a result, almost half the unemployed were out of a job for six months or more. As their skills and experience became outdated, cyclical unemployment led to structural unemployment.
It hit the older jobless person the most. Although younger workers were more likely to be unemployed, they weren't that way for long. They either found a low-paying job or went back to school, dropping out of the labor force altogether. Their unemployment duration was bad enough, at 19.9 weeks, but less than the older unemployed.
Those aged 55 to 64 were out of work for 44.6 weeks, or almost a year. Those over age 65 looked for work 43.9 weeks before finding a job. Many just gave up. That forced them into early retirement.
Why were older workers more affected than younger ones by structural unemployment? There were five reasons:
- Older workers were more likely to have jobs in industries like newspapers that were replaced by new technology.
- They were less likely to go back to school.
- They were less able to move to find a new job because they owned their home. The depressed housing market meant they'd be more likely to lose money or default on an upside-down mortgage if they did try to sell.
- Many were not willing to take a lower-paying job.
- Older workers faced unacknowledged age discrimination.
How It Affects You
Structural unemployment increases U.S. income inequality. That's because the older long-term unemployed worker doesn't have the necessary technical skills. While they were unemployed, their industry moved on without them. That created a mismatch between them and the jobs being created.
A Kauffman Foundation survey of fast-growing private companies supports this view. Forty percent of them said it was difficult to find skilled workers.
Second, many older unemployed rely more heavily upon on Social Security and Medicare than they would have if they still held jobs. Many of them might draw down Social Security at 62 instead of waiting for larger payouts at 65 or older. That will weigh heavily on the federal budget and its already record levels of debt.