What Is Structural Unemployment? Causes, Examples

Why It's Harder to Find A Job Now

Structural unemployment
Structural unemployment is usually caused by a mis-match between jobs available and the skills of the unemployed. Credit:Chris Hondros/Getty Images

Definition: Structural unemployment is a permanent level of unemployment that'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. There is a mismatch between the jobs available and the skill levels of the unemployed. It is harder to correct than other types of unemployment.

Structural unemployment can add to a high unemployment rate long after a recession is over.

If ignored by policy-makers, it can then even lead to a higher natural unemployment rate. See how this occurred in U.S. Unemployment Rate by Years.

Two Causes of Structural Unemployment

One cause of structural unemployment is technological advances in an industry. That happened in manufacturing. Robots have been replacing unskilled workers. These workers must get training in computer operations. They learn how to manage the robots in the same factories they worked in before.

A second cause is trade agreements, such as NAFTA. When the agreement first lifted trade restrictions, many factories relocated to Mexico. They left their former employees without a place to work. For more, see Causes of Unemployment.

Examples of Structural Unemployment

For example, technological advances have created structural unemployment in the newspaper industry. Web-based advertising has taken over its source of revenue.

That meant employees, such as journalists, printers, and newspaper delivery boys, 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.

Did the Financial Crisis Create Structural Unemployment?

The financial crisis of 2008 created record levels of unemployment, as 8.3 million jobs were lost. By 2009, the unemployment rate had risen to 10.1%. Housing, which usually drives the expansion phase of the business cycle, was suppressed by a wave of foreclosures. As a result, nearly half the unemployed were out of a job for six months or more. That created structural unemployment, as their skills and experience started to become outdated.

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 more quickly 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 between 55-64 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 or just giving up. That forced them into early retirement. Why? There were five reasons:

  1. Older workers were more likely to have been in industries, like newspapers, which were being replaced by new technology.
  2. They were less likely to go back to school.
  3. 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.
  4. Many older workers might not be willing to take a lower-paying job.
  5. Older workers faced unacknowledged age discrimination.

(Source: New York Times Economix, Older Workers Without Jobs Face Longest Time Out of Work, May 6, 2011)

Impact of Structural Unemployment on the Post-Recession Economy

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, the work world moved on without them. That's 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 more difficult to find skilled workers than to boost demand.  (Source: FT.com, Skills Gap Hobbles U.S. Employers, December 13, 2011)

Second, many older unemployed will 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, already facing record levels of debt.