What Is Structural Unemployment and What Causes It?

Structural unemployment occurs when an uneven balance exists between available jobs and people with the necessary skills to do these jobs. It can be a national or regionally dependent issue, with certain geographic locations lacking qualified employees for positions while another region is thriving.

Implementing structural unemployment solutions is challenging due to the specific factors and large-scale causes of structural unemployment. While structural unemployment can contribute to the overall unemployment rate across the country, this particular type of unemployment can still exist even as recessions end and market conditions improve.

Explore what structural unemployment is, what causes it, and how it compares to other forms of unemployment.

What is structural unemployment?

Unlike other types of unemployment, structural unemployment isn’t a result of a lack of job availability or openings. Instead, open positions exist, but a lack of individuals with the skills to fill those roles. It can take years for people in the job market to acquire the required skills employers seek, making structural unemployment an issue that drags on for an extended period. It can take decades for structural unemployment to improve.

However, a lack of skills and training isn’t the only contributing factor to structural unemployment—other factors, such as globalization, technological progression, and government policies, play a significant role in causing the disparity.

Causes of structural unemployment

Structural unemployment results from a need for more people with the necessary skills to do certain jobs. But what causes the gaps seen between job openings and qualified workers? The following expounds on some of the primary causes of structural unemployment:

• Advancements in technology: When new technology comes about, it can change the responsibilities of some jobs, making new skills essential while eliminating the need for others. For example, in manufacturing, machines can replace the need for humans. To have relevant skills, employees must receive training to develop new skills to operate new technologies.

• Relocation: Companies may relocate their facilities to areas that offer opportunities for cheaper labor to reduce costs. When companies move, it can leave many people who need work. These people then need to leave to find employment or take the time to gain new skills to transition to another field of work. This gap can cause structural unemployment within a community.

• Economic shifts: Certain industries are more prone to feeling the effects of shifts in the economy as trends change and consumer preferences evolve. For example, when you have a job that depends on trends or consistent product sales, a decrease in demand for that product can impact the necessity of your role and your job security. This scenario often occurs in industries such as retail and food services.

• Lack of training and education: When companies fail to provide internal training and development for their employees to continue gaining new skills, they may eventually find their skills no longer relevant to the modern work environment. This schism can cause structural unemployment since these employees must update their skills and learn new business practices or technology to attain a new position in their industry.

Structural unemployment by industry

Some industries are more likely to experience structural unemployment. For example, industries experiencing technological advances or companies that choose to move overseas for cheaper production costs can cause structural unemployment. 

Three industries that tend to have challenges with structural unemployment include manufacturing, agriculture, and trade. The manufacturing and agriculture industries constantly change as new machinery becomes available, meaning that some might lose their positions as their jobs become less dependent on skilled laborers. On the other hand, the trade industry suffers from structural unemployment due to the impact of government regulations and public policy.

Structural unemployment vs. other types of unemployment

Structural unemployment is just one of many types of unemployment. Here’s how it compares to other common types of unemployment. 

Cyclical unemployment

Cyclical unemployment is derived from economies’ business cycles' direct impact on employment levels. When the economy is thriving, cyclical unemployment is low. However, when a recession hits, cyclical unemployment is high due to decreases in demand and production. 

Unlike structural unemployment, a disparity in qualified workers and job openings doesn’t exist. Instead, cyclical unemployment occurs when companies lay off employees to protect profit margins as people spend less money during recessions. To limit the consequences of cyclical unemployment, the government may introduce policies to encourage spending, such as lowering interest rates.

Cyclical and structural unemployment are similar, though, in that they are both involuntary and dependent on external factors, such as the scope of the economy. In the long term, a cyclical unemployment situation can become structural if a company phases out those jobs, like a manufacturer laying off factory workers but eventually replacing them with machines. 

Frictional unemployment

Frictional unemployment occurs when employees leave their jobs to find new positions elsewhere. Moving to a new city, choosing a new career path that better aligns with your interests, or pursuing a college education are all causes of frictional unemployment.

Frictional unemployment varies from structural unemployment because it is a form of voluntary unemployment, and it typically isn’t a sign of a struggling economy. Frictional unemployment can mean the opposite since a thriving economy means an employee has less risk when voluntarily leaving a job. 

Seasonal unemployment

Seasonal unemployment occurs when a demand for certain positions no longer exists at the end of a season. Unlike structural unemployment, seasonal unemployment is usually predictable. For example, businesses like summer camps, ski resorts, and tourism are seasonal, so some employees can only work during the months of operation. 

Seasonal employment opportunities are great for building your resume, and with a good performance, they may earn you a full-time job offer. For students, seasonal employment is also a way for you to earn money between semesters or during the holidays to gain valuable experience. 

Classical unemployment

Classical unemployment results when wages are high, and the cost of employing an entire workforce is too great for a business to handle. It is sometimes known as real-wage unemployment. Causes for unaffordable wages include government minimum wage increases and union negotiations resulting in higher salaries. Classical unemployment differs from structural unemployment because the employees qualify and have the necessary skills to do the job. Still, it becomes too expensive for the business to employ an entire staff.

Tips to overcome structural unemployment

You can mitigate the potential of structural unemployment by pursuing regular professional development to stay up-to-date with valuable skills that can qualify you for career advancements. For example, certifications and professional development opportunities can help you gain transferable skills. You can also perform research to identify changes in industry trends that may impact what positions may become obsolete and what skills will be in high demand.

Next steps on Coursera

While some global economic changes are out of your control, one way to avoid structural unemployment is to ensure your current skill set matches those sought in the labor market. One way to do this is to develop new job-ready skills, such as data analytics, to prepare for a career as a data analyst with a Google Data Analytics Professional Certificate, where you can earn a resume-boosting credential in less than six months.

On Coursera, you can find highly-rated courses to learn more about economics, or you can earn a Professional Certificate to gain specific in-demand skills employers are looking for. For example, the Microeconomics Principles course offered by the University of Illinois discusses how labor markets, politics, and more play a role in influencing the economy.