structural unemployment

Structural Unemployment Explained in 5 Mins. (Causes and Solutions)

Structural unemployment is a type of unemployment caused by a mismatch between the skills of available workers and the skills needed for the available jobs. It is a pervasive problem in today’s economy, with some estimates showing that over 40 million people worldwide are structurally unemployed.

This type of unemployment is often caused by changes in the economy, such as

  • The decline of specific industries or
  • The growth of new ones.
  • And changes in the labor market due to technology, globalization, or other economic changes.

Structural unemployment can be a challenging problem for individuals, as well as for governments and societies as a whole. This article will look at the causes of structural unemployment and potential solutions.

What is Structural Unemployment

Structural unemployment is long-term unemployment caused by structural changes in the economy. It occurs when job seekers lack the skills or experience to take advantage of new opportunities created by changes in industries, technology, and the workforce.

what is structural unemployment
Source: Adobe

Structural unemployment can persist even when the economy is booming, making it particularly difficult for those affected.

A lack of job openings does not cause structural unemployment. Instead, it’s caused by a mismatch between the skills and experience needed for available jobs and those that job seekers possess.

As a result, even if the number of jobs available increases, those affected by structural unemployment may still be unable to find work due to their lack of qualifications or experience.

Structural unemployment can have severe economic and social implications. Without a steady income, those affected may have difficulty providing for their families and resort to taking lower-paying jobs or relying on government assistance.

Factors Contributing to Structural Unemployment (Causes)

The most common causes of structural unemployment include technological advancement, globalization, shifts in consumer demand, and shifts in the labor force.

1. Technological Advancement:

Technological advancement has been a significant driver of structural unemployment over the last several decades. As technology advances, machines have replaced many jobs that used to be done by humans.

This shift has eliminated specific jobs and created new jobs requiring different skills. For instance, when computers and automation began to replace manual labor jobs, many people without computer experience were suddenly unemployed.

2. Globalization:

Globalization has resulted in the relocation of production and services from one country to another. Many people who once held jobs in the domestic labor force have lost them due to companies moving their operations abroad.

This is especially true for industries such as manufacturing, where foreign countries often provide cheaper labor than domestic sources.

3. Shifts in Consumer Demand:

Consumers’ preferences for certain products and services can change over time, shifting jobs from one industry to another. This is often seen in the hospitality industry, where travel and tourism can change the types of positions available.

4. Shifts in the Labor Force:

Changes in the labor force can also lead to structural unemployment. For example, baby boomers are starting to retire from their positions, leading to an increase in structural unemployment among younger generations who may not possess the same skill sets as their predecessors.

Structural unemployment can significantly impact an economy, reducing consumer spending, productivity, and economic growth. Governments and businesses need to address structural unemployment to prevent long-term economic issues.

The Solution to Structural Unemployment

 The following are strategies that governments, businesses, and individuals can use to help reduce structural unemployment in any country.

1. Provision of Job Training and Education: One possible solution to structural unemployment is investing in job training and education. With adequate training and education, people can gain the skills and qualifications needed for new or emerging industries, giving them job security in the changing economic climate.

2. Provision of Incentives to create new jobs: Another solution to structural unemployment is the provision of incentives by the government to encourage businesses to create new jobs in sectors with higher growth potential. These incentives can be subsidies, grants, tax breaks, or other financial assistance to encourage businesses to hire more workers.

3. Infrastural investment: Investment in infrastructure is another solution to structural unemployment. By investing in projects such as roads, bridges, and public transportation, governments can help stimulate economic growth and provide job opportunities for unemployed workers.

4. Flexible employment policies: Governments should also consider implementing policies that make it easier for businesses to employ people on a short-term basis to boost economic growth and provide opportunities for those unable to secure permanent employment.

5. Fiscal Policy: Finally, governments can use fiscal policy (changing taxes, subsidies, and other economic policies) to reduce structural unemployment’s impact and encourage businesses to hire more workers or increase wages for existing employees.

In Conclusion

In conclusion, structural unemployment can be a complex problem to solve. Still, with the right policies and initiatives, it is possible to help workers adapt to the changing economy and find fulfilling and rewarding jobs.

We address several potential solutions that governments, businesses, and individuals can use to address structural unemployment. By investing in job training and education, providing incentives to create new jobs, investing in infrastructure projects, introducing flexible employment policies, and using fiscal policy to boost wages and spending, the adverse effects of structural unemployment can be minimized.

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Tofunmi

Tofunmi is a BA, MBA, and experienced Researcher in Business Administration and Management. He possesses outstanding communication, leadership, conflict resolution, organization, and teamwork skills. He enjoys teaching and reading books on startups, business, personal finance, investment, and more.