Structural Unemployment in Business: Addressing Skill Gaps and Job Displacement
Imagine waking up one day to find your job is no longer relevant—not because of a temporary economic slump, but because your skills are no longer needed in today’s world. This is what happens in structural unemployment. It’s different from other forms of unemployment that might come and go with economic changes. Structural unemployment sticks around because the job itself or the skills it requires have become outdated.
In today’s fast-paced, tech-driven economy, this type of unemployment is a big deal. We’re seeing rapid changes in industries due to new technologies, like automation and artificial intelligence, that are replacing human workers with machines. These changes are leaving many workers behind, especially those without the necessary skills to transition to new roles.
Structural unemployment isn’t about people voluntarily switching jobs or waiting for the economy to bounce back. It’s more about the economy moving on without certain workers unless they learn new skills or transition into different industries. This makes it a pressing issue that requires long-term solutions like retraining, education, and policies to help people adjust.
What is Structural Unemployment?
Structural unemployment happens when there’s a lasting mismatch between what workers can offer and what employers need. Unlike unemployment caused by economic downturns (which usually goes away when the economy improves), structural unemployment sticks around because the market has shifted in a way that leaves some workers behind.
Structural unemployment doesn’t resolve itself easily. Jobs disappear or change, leaving workers with outdated skills. Unlike frictional unemployment, it’s not about people voluntarily leaving a job—it’s about their jobs being made irrelevant by changes in the market.
Causes of Structural Unemployment
Technological Advancements
Technology is changing everything. Machines and robots are taking over jobs that used to be done by humans. In factories, where people once worked on assembly lines, robots are now doing the same tasks—only faster and without needing breaks. This is happening in other industries, too, like retail, where self-checkout machines are replacing cashiers. While this makes things more efficient, it also means many jobs are disappearing.
People who don’t have the skills to work with or program these new machines are finding themselves without work. The jobs they used to do aren’t coming back, and without training in new technologies, these workers get stuck in long-term unemployment.
Changes in Consumer Preferences and Industries
What people want is always changing, and that can impact entire industries. Take the example of landline telephones. Once upon a time, everyone had one. But as smartphones became popular, the demand for landlines dropped. People who worked in industries related to landline production and maintenance suddenly found themselves without jobs.
Another example is the energy sector. The world is moving away from coal and toward cleaner, renewable energy sources like wind and solar. Coal miners, who were once in high demand, are now facing unemployment because the demand for coal has dropped. Unfortunately, many of these workers lack the skills needed to move into renewable energy jobs.
Globalization
Globalization has made it easier for companies to outsource jobs to countries where labor is cheaper. Factories that once employed thousands of workers in places like the U.S. have moved their operations to countries with lower wages. This has left many workers in developed nations without job opportunities. These jobs aren’t coming back, and the workers who rely on them are often left with few options.
Education and Skills Gap
One of the biggest challenges with structural unemployment is the gap between the skills workers have and the skills employers need. As industries evolve, workers need to keep their skills up to date. However, many workers, especially older ones, may find it difficult to keep up with these changes. Without the proper education or training, they’re left behind, unable to compete in today’s job market.
The Effects of Structural Unemployment on Individuals and the Economy
Impact on Workers
For workers, structural unemployment can be devastating.
- Skill loss: Being out of work for a long time can cause skills to become outdated, making it even harder to find a new job.
- Mental health: Long-term unemployment can take a toll on mental health, leading to stress, anxiety, and depression.
- Financial stress: Without a steady income, families struggle to pay bills and maintain their standard of living.
Impact on the Economy
Structural unemployment doesn’t just hurt individuals—it affects the entire economy.
- Lower consumer spending: When people are out of work, they don’t have money to spend on goods and services, which reduces overall demand.
- Reduced tax revenue: With fewer people earning incomes, the government collects less in taxes. This means less funding for important public services like healthcare, education, and infrastructure.
In the long run, structural unemployment can slow economic growth, creating a vicious cycle where fewer jobs lead to less spending, which in turn makes it harder for businesses to grow and create new jobs.
Structural Unemployment vs. Cyclical Unemployment
Cyclical unemployment happens when the economy takes a downturn. Businesses close or reduce their workforce because there’s less demand for goods and services. The good news? Cyclical unemployment tends to resolve itself once the economy recovers. People get their jobs back, and things return to normal.
Structural unemployment, on the other hand, is more permanent. It doesn’t wait for the economy to bounce back—it’s tied to deeper changes in how industries operate.
For example, if a factory automates its production line, the workers replaced by machines won’t get their jobs back just because the economy improves. Solving structural unemployment requires more than just economic recovery; it demands significant changes like retraining workers or creating entirely new industries.
Structural Unemployment vs. Frictional Unemployment
Frictional unemployment is voluntary and short-term. It happens when people are in between jobs—like a college graduate looking for their first job or someone who quit to find a better position.
Frictional unemployment is considered normal and even healthy for an economy, as it means people are searching for roles that better fit their skills or interests.
Structural unemployment, however, is involuntary. It’s caused by economic changes beyond the worker’s control, like technological shifts or industry declines. Workers who face structural unemployment often have to learn new skills or move to a new industry to find work, and this can take much longer to resolve.
Key Examples of Structural Unemployment from Recent Events
The 2007-2009 Financial Crisis
During the global recession of 2007-2009, millions of jobs were lost, and some industries never fully recovered. In sectors like construction and manufacturing, many jobs that disappeared during the downturn were permanently lost, not because demand didn’t come back but because these industries had fundamentally changed. Companies that survived the crisis often turned to automation or moved operations overseas, leaving workers without roles to return to.
The Impact of COVID-19
COVID-19 also triggered structural changes in the workforce. The pandemic accelerated the shift to remote work, which reduced demand for jobs like receptionists, office assistants, and product demonstrators. Many of these roles, tied to physical office spaces or in-person services, might not come back even after the pandemic. The rise of e-commerce also left traditional retail workers without jobs as stores closed or downsized.
Technological Displacement in France
France offers a case study of how structural unemployment plays out on a national level. In recent years, many industries in France have faced labor market shifts due to technology and globalization.
For example, manufacturing jobs have been replaced by automation, leading to persistent structural unemployment. President Macron’s government has responded by trying to modernize the labor market, focusing on education and retraining programs to help displaced workers adapt to new industries.
Workable Solutions to Structural Unemployment You Should Know
Education and Retraining Programs
One of the most effective ways to combat structural unemployment is through education and retraining programs. Workers need to develop new skills that match the evolving demands of the job market.
For example, after World War II, the G.I. Bill helped veterans transition back into civilian life by covering their education costs. Similar programs today could provide displaced workers with the opportunity to gain skills in high-demand fields like technology, healthcare, or renewable energy.
Government Policies and Initiatives
Government action can play a crucial role in addressing structural unemployment. By investing in new industries, such as renewable energy or advanced manufacturing, governments can create new job opportunities for workers who have been displaced by economic changes.
Policies that support job transitions, such as unemployment benefits linked to retraining programs, can help workers navigate the shift from declining industries to growing sectors.
Private Sector Involvement
Businesses also have a role to play in addressing structural unemployment. Companies can invest in upskilling their employees, offering training programs that keep their workforce competitive as technology changes.
By helping workers develop the skills they need to thrive in new roles, businesses not only prevent structural unemployment within their own ranks but also contribute to a more resilient economy overall.
The Long-Term Benefits of Addressing Structural Unemployment
Innovation and Economic Growth
Addressing structural unemployment can drive innovation. When workers are retrained and transition into industries with more potential for growth, they bring fresh perspectives and ideas. This can help businesses evolve and increase productivity.
By reallocating labor to more innovative sectors, the economy benefits from new ideas, technologies, and ways of doing business, which can spur long-term growth.
Increased Resilience in the Labor Market
Tackling structural unemployment also makes the labor market more resilient. When societies invest in retraining and education, they become better equipped to handle future disruptions, whether from new technologies or global economic changes. This adaptability ensures that workers aren’t left behind as industries evolve, creating a more flexible and sustainable economy for the future.
Takeaway Note
Structural unemployment is a complex, long-term challenge that goes beyond the typical ebb and flow of economic cycles. While it may seem daunting, with the right education, government support, and business initiatives, displaced workers can find new opportunities in growing industries. By addressing this issue, we can build a more innovative and resilient economy that benefits everyone.
FAQs
What is the difference between seasonal and structural unemployment?
Seasonal unemployment happens due to changes in demand during specific times of the year, like holiday jobs or agricultural harvests. Structural unemployment is long-term and happens when industries or technologies change, making certain skills obsolete.
What is frictional unemployment also known as?
Frictional unemployment is also called “natural unemployment.” It refers to the short-term joblessness that occurs when people are in between jobs or just entering the workforce, like recent graduates.
What is structural unemployment closely associated with?
Structural unemployment is closely linked to changes in industries, often due to technological advances, shifts in consumer demand, or globalization. It’s not related to short-term economic cycles but deeper market changes.
What is the Phillips curve?
The Phillips curve is an economic theory that suggests an inverse relationship between unemployment and inflation. In other words, when unemployment is low, inflation tends to be higher, and vice versa.
What are some examples of jobs impacted by structural unemployment?
Jobs in industries like manufacturing, coal mining, and traditional retail have been impacted by structural unemployment. Technological advancements and shifts to automation have replaced many roles, leaving workers with outdated skills.
