What Is Structural Unemployment?

Structural unemployment is a type of unemployment that occurs when there is a mismatch between the skills workers have and the skills employers need. Unlike temporary unemployment caused by seasonal changes or short periods between jobs, structural unemployment is often longer-lasting because the nature of the economy has changed. Workers may want to work and actively search for jobs, but their existing skills, experience, or location may not match available opportunities.

Understanding structural unemployment is important because it can affect workers, businesses, governments, and the wider economy. It also helps explain why unemployment can remain high even when jobs are available.

Definition of Structural Unemployment

Structural unemployment occurs when changes in an economy reduce the demand for certain types of workers while increasing demand for workers with different skills. The unemployed workers are not necessarily unwilling to work. Instead, they may lack the qualifications required for the jobs that are currently available.

For example, suppose a manufacturing company replaces many assembly-line workers with automated machines. Workers who lose their jobs may have years of experience in manufacturing, but the company may now need technicians who can operate, maintain, and program the new equipment. If the former assembly workers do not have these technical skills, they may remain unemployed until they receive additional training or find employment in another industry.

Structural unemployment can therefore result from technological progress, changes in consumer preferences, globalization, industry decline, or other long-term economic changes.

What Causes Structural Unemployment?

Several factors can contribute to structural unemployment.

1. Technological Change

Technology is one of the most common causes of structural unemployment. Automation, artificial intelligence, robotics, and computerization can replace certain tasks previously performed by workers.

While technological change can eliminate some jobs, it can also create new ones. However, the new jobs may require different qualifications. Workers who lose traditional positions may therefore need to learn new skills before they can take advantage of emerging opportunities.

2. Changes in Consumer Demand

Consumer preferences can change over time. When people stop buying certain products or services, businesses in those industries may reduce production and employment.

For instance, declining demand for physical media has affected industries involved in producing and selling products such as CDs and DVDs. Workers in declining industries may have difficulty finding similar jobs if demand has shifted toward digital alternatives.

3. Globalization and International Trade

International trade can contribute to structural unemployment when domestic industries face increased competition from foreign producers. Companies may move some production to countries where costs are lower or may reduce their domestic workforce because imported products are less expensive.

Although international trade can create new opportunities and increase economic efficiency, workers in industries facing long-term decline may need to transition into other sectors.

4. Changes in Industry Structure

An economy's structure can change as some industries expand while others shrink. For example, an economy may gradually move away from agriculture and manufacturing toward services, technology, healthcare, and professional industries.

Workers with skills suited to declining industries may struggle to move into growing sectors without retraining.

5. Geographic Mismatch

Structural unemployment can also occur when jobs are available in one location but unemployed workers live somewhere else. Moving may be difficult because of housing costs, family responsibilities, transportation limitations, or a lack of information about opportunities elsewhere.

For example, a region that historically depended on mining may lose many mining jobs as resources become less profitable. Meanwhile, growing technology or service industries may be concentrated in a different city or region. Workers may remain unemployed if relocating is not practical.

Examples of Structural Unemployment

Consider a newspaper industry that once employed large numbers of printing and distribution workers. As consumers increasingly obtain news online, demand for printed newspapers declines. Companies may reduce their printing operations and dismiss workers.

The displaced workers may have valuable experience, but their previous skills may not be sufficient for jobs in digital publishing, software development, online marketing, or data analysis. They may need education or retraining before they can compete for these positions.

Another example can be found in manufacturing. A factory that introduces advanced robotics may need fewer traditional production workers but more engineers, programmers, and maintenance specialists. The workers whose positions disappear may experience structural unemployment if they cannot immediately qualify for the new jobs.

Structural Unemployment vs. Other Types of Unemployment

Structural unemployment is different from several other forms of unemployment.

Frictional unemployment occurs when people are temporarily between jobs. A person who leaves one job and is searching for another may be frictionally unemployed. This type of unemployment is generally short-term and is a normal part of a dynamic labor market.

Cyclical unemployment results from economic downturns. During a recession, businesses may reduce production and lay off workers because demand for goods and services has fallen. When the economy recovers, many of these jobs may return.

Seasonal unemployment occurs because some jobs are available only during particular times of the year. Agricultural workers, tourism employees, and some retail workers may experience seasonal unemployment.

Structural unemployment, by contrast, is primarily associated with long-term changes in the economy and a mismatch between available workers and available jobs.

Why Structural Unemployment Can Last a Long Time

One reason structural unemployment can be persistent is that skills cannot always be changed quickly. Learning a new occupation may require months or years of education, vocational training, work experience, or certification.

There may also be barriers to geographic mobility. A worker cannot necessarily move to another city simply because jobs are available there. Housing costs, transportation, family commitments, and other factors can prevent relocation.

In addition, employers may be reluctant to hire workers who lack recent experience in a particular field. This can make it difficult for displaced workers to enter growing industries even when vacancies exist.

Effects of Structural Unemployment

Structural unemployment can have significant economic and social consequences.

For workers, prolonged unemployment can lead to lost income, reduced savings, and difficulties maintaining living standards. Long periods without work can also make it harder to maintain or develop job-related skills.

For businesses, a shortage of workers with the right qualifications can make recruitment more difficult. Companies may have unfilled positions even while many people are unemployed.

For the economy, structural unemployment means that available labor resources are not being used efficiently. The economy may produce less than it could if workers' skills were better matched with employers' needs.

Governments may also face higher spending on unemployment benefits, retraining programs, education, and other forms of assistance.

How Can Structural Unemployment Be Reduced?

Structural unemployment cannot always be eliminated, because economies naturally change. However, governments, businesses, educational institutions, and workers can take steps to reduce its effects.

Education and Retraining

Education and vocational training can help workers develop skills that are in demand. Programs in areas such as technology, healthcare, skilled trades, and other growing industries can make it easier for unemployed workers to transition into new careers.

Improved Job-Matching Services

Employment agencies and online job platforms can help workers identify vacancies that match their skills. Better information about available jobs and required qualifications can reduce mismatches in the labor market.

Geographic Mobility

Policies that improve transportation, housing availability, or relocation assistance can make it easier for workers to move toward areas with more employment opportunities.

Support for Lifelong Learning

Because technology and industries continue to evolve, workers increasingly need to update their skills throughout their careers. Employers and governments can support continuing education and professional development.

Structural Unemployment and the Future of Work

Technological developments are likely to continue changing the labor market. Artificial intelligence, automation, robotics, and digital technologies may replace some tasks while creating demand for new occupations.

This does not necessarily mean that technology will permanently reduce the number of jobs. Historically, technological progress has created new industries and occupations as older ones declined. However, the transition can be difficult for workers whose existing skills become less valuable.

The ability of workers to adapt and acquire new skills will therefore play an important role in determining how economies respond to technological and structural changes.

Conclusion

Structural unemployment is unemployment caused by a long-term mismatch between workers' skills, the location of workers, and the jobs available in the economy. It can result from technological change, globalization, changing consumer preferences, declining industries, and geographic shifts in employment.

Unlike temporary unemployment, structural unemployment can persist because workers may need significant retraining or relocation before they can find suitable employment. Its effects can be reduced through education, vocational training, lifelong learning, effective job-matching services, and policies that help workers move into growing industries.

Structural unemployment is ultimately a reflection of an economy that is changing. Helping workers adapt to those changes can reduce unemployment while allowing businesses and economies to make better use of available human talent.