4.8: Structural Unemployment

Structural unemployment is a long-lasting form of unemployment caused by fundamental shifts in an economy, such as technological advancements or changes in consumer demand, that make certain job skills obsolete. When there is a mismatch between workers' skills and the skills required for new jobs, structural unemployment occurs.

For example, automation in manufacturing can reduce the need for certain manual labor skills, which could lead to structural unemployment.

Also, when the demand for a product declines, the demand for labor in that industry decreases. This could also lead to many job losses and is another reason for the existence of structural unemployment.

A key characteristic of structural unemployment, which distinguishes it from short-term frictional unemployment, is its long-term nature, as workers often need significant time to retrain or relocate.

Structural unemployment, along with frictional unemployment, comprises the natural rate of unemployment in the economy.

Daniel was a regional sales manager for a company that manufactured point-and-shoot cameras. In the early 2000s, as these cameras became widely used, he oversaw training for store staff and coordinated efforts with retailers.

At that time, point-and-shoot cameras were in high demand.

But over time, things changed.

As smartphones improved, consumers began using their phones to take photos.

With high-quality images, built-in editing tools, and the convenience of a capable camera integrated into a device they carried daily, led most consumers to prefer smartphones over standalone cameras.

As a result, point-and-shoot cameras became redundant for many customers.

Many people, including Daniel, lost their jobs as the demand for standalone cameras declined.

This is an example of structural unemployment. When the demand for a product declines, it results in a decrease in the demand for labor in that industry. As a result, many workers lose their jobs.

Structural unemployment is a long-lasting form of unemployment caused by fundamental shifts in an economy, such as technological advancements or changes in consumer demand, that make certain job skills obsolete.