Sunday, December 12, 2010

What is structural unemployment ?

What is structural unemployment ??

Structural unemployment is unemployment due to the mismatch of skills and geographic location between the labor force and the jobs market. Structural Unemployment includes workers who do not have the skills to fill open positions or workers who do not want to move to fill an open position.

For example, even during the recession the US has a shortage of engineers and computer technicians. Another example, is technology and globalization have reduced the need for manufacturing technicians leading to a a surplus of manufacturing workers. An example of geographic unemployment is fishermen and oil workers from the Gulf Coast who did not want to move to Alaska after hurricane Katrina. Workers may not want to move because of family, community, or investment decision (a house they cannot sell).

Some economist add discrimination, monopoly power, and government policies as factors that contribute to structural unemployment. There is also speculation that worker attitudes and perceptions may play a part. For example,"I am not working at Wal-Mart or MacDonalds my friends will make fun of me."

In the perfect world, employees would have exact skills in the right place to satisfy labor demand perfectly. However, in the real world

Economists define several different types of unemployment

Wage unemployment. Wages are set higher then what the market demands resulting in an over supply of labor for the number of positions. An example is minimum wage laws which may cause business to hire less employees than they would otherwise.

Structural unemployment. A mis-match between labor skills, labor geography and jobs demand.

Cyclical unemployment. Unemployment due to economic fluctuations and shocks like the collaspe of the housing bubble and the effect on residential construction unemployment. This type is caused by lack of demand.

And search unemployment. The time a workers spends looking for the best possible job. There is never a perfect match between worker and job; both must compromise. This is the time workers spend between jobs before accepting an offer.

During a recession, economists argue over how much of the unemployment rate is structural versus cyclical. Structure unemployment can only be reduced by long-term changes such as training, relocation, new industries opening or government policies. Cyclical unemployment can be reduced by stimulating demand either through government spending or reduced taxes.

Finally, another important concept is natural rate of employment or NAIRU - the non accelerating inflation rate of unemployment. This is the rate of unemployment below which inflation is created in a economy.

No comments:

Blog Archive