Structural unemployment
Encyclopedia
Structural unemployment is a form of unemployment
resulting from a mismatch between demand in the labour 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. 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, 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. 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 to be one of the "permanent" types of unemployment, where improvement is possible only in the long run.
explored the potential for a high level of structural unemployment in his 1995 book The End of Work
. 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, 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, 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.
and purchasing power
) from employment as defined by the current labor market.
Unemployment
Unemployment , as defined by the International Labour Organization, occurs when people are without jobs and they have actively sought work within the past four weeks...
resulting from a mismatch between demand in the labour 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. 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
Frictional unemployment
Frictional unemployment is the time period between jobs when a worker is searching for, or transitioning from one job to another. It is sometimes called search unemployment and can be voluntary based on the circumstances of the unemployed individual....
, 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, 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. 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
Hysteresis
Hysteresis is the dependence of a system not just on its current environment but also on its past. This dependence arises because the system can be in more than one internal state. To predict its future evolution, either its internal state or its history must be known. If a given input alternately...
."
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
Okun's law
In economics, Okun's law is an empirically observed relationship relating unemployment to losses in a country's production first quantified by Arthur M. Okun. The "gap version" states that for every 1% increase in the unemployment rate, a country's GDP will be at an additional roughly 2% lower...
, 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
Jobless recovery
A jobless recovery or jobless growth is an economic phenomon in which a macroeconomy experiences growth while maintaining or decreasing its level of employment...
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
Unemployment
Unemployment , as defined by the International Labour Organization, occurs when people are without jobs and they have actively sought work within the past four weeks...
distinguished by economists
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...
. Structural unemployment is considered 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.Automation
Jeremy RifkinJeremy Rifkin
Jeremy Rifkin is an American economist, writer, public speaker, political advisor and activist. He is the founder and president of the Foundation On Economic Trends...
explored the potential for a high level of structural unemployment in his 1995 book The End of Work
The End of Work
The End of Work: The Decline of the Global Labor Force and the Dawn of the Post-Market Era is a non-fiction book by American economist Jeremy Rifkin, published in 1995 by Putnam Publishing Group....
. 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
Marshall Brain
Marshall David Brain is an American author, public speaker, and entrepreneur. A former college instructor and computer programmer, Brain is the founder of HowStuffWorks.-Background:Marshall Brain was born in Santa Monica, California...
, a Fellow in the IEET
Institute for Ethics and Emerging Technologies
The Institute for Ethics and Emerging Technologies was founded in 2004 by philosopher Nick Bostrom and bioethicist James Hughes. Incorporated in the United States as a non-profit 501 organization, the IEET is a self-described "technoprogressive think tank" that seeks to contribute to understanding...
think-tank, spoke on his projections of widespread structural unemployment as a result of automation, and the need for a basic income
Basic income
A basic income guarantee is a proposed system of social security, that regularly provides each citizen with a sum of money. In contrast to income redistribution between nations themselves, the phrase basic income defines payments to individuals rather than households, groups, or nations, in order...
guarantee, at the Singularity Summit
Singularity Summit
The Singularity Summit is the annual conference of the Singularity Institute for Artificial Intelligence. It was started in 2006 at Stanford University by Ray Kurzweil, Eliezer Yudkowsky, and Peter Thiel, and the subsequent summits in 2007, 2008, 2009, 2010, and 2011 have been held in San...
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, 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
Offshoring
Offshoring describes the relocation by a company of a business process from one country to another—typically an operational process, such as manufacturing, or supporting processes, such as accounting. Even state governments employ 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 confidenceConsumer confidence
Consumer confidence is an economic indicator which measures the degree of optimism that consumers feel about the overall state of the economy and their personal financial situation. How confident people feel about stability of their incomes determines their spending activity and therefore serves as...
and purchasing power
Purchasing power
Purchasing power is the number of goods/services that can be purchased with a unit of currency. For example, if you had taken one dollar to a store in the 1950s, you would have been able to buy a greater number of items than you would today, indicating that you would have had a greater purchasing...
) from employment as defined by the current labor market.
See also
- Types of unemployment
- DeindustrializationDeindustrializationDeindustrialization is a process of social and economic change caused by the removal or reduction of industrial capacity or activity in a country or region, especially heavy industry or manufacturing industry. It is an opposite of industrialization.- Multiple interpretations :There are multiple...
- Differences between the Natural Rate of Unemployment and the NAIRU
- Post-industrial societyPost-industrial societyIf a nation becomes "post-industrial" it passes through, or dodges, a phase of society predominated by a manufacturing-based economy and moves on to a structure of society based on the provision of information, innovation, finance, and services.-Characteristics:...
- Jobless recoveryJobless recoveryA jobless recovery or jobless growth is an economic phenomon in which a macroeconomy experiences growth while maintaining or decreasing its level of employment...
Further reading
- Ganapati, Priya. Brainy Robots To Lead To Longer Unemployment Lines? October 25, 2008.