Structural Unemployment

Structural unemployment occurs when people seeking work do not have the skills required for the jobs available. More precisely, it reflects a persistent mismatch between labour supply and labour demand, often arising when technological change or shifts in production alter the occupations, qualifications or locations in which workers are needed.

How the skills mismatch arises

An economy can have unemployed workers and unfilled vacancies at the same time because workers are not immediately interchangeable across occupations. Acquiring new skills and moving into expanding industries takes time and resources.

• Technological change can reduce demand for some tasks while increasing demand for workers able to operate, maintain or complement new technologies.
• Changes in the composition of demand can shrink employment in declining industries while creating jobs in other industries that require different capabilities.
• Education and training that do not match employers’ requirements can leave jobseekers without relevant technical or occupational skills.
• Geographical barriers can reinforce the mismatch when suitable jobs are elsewhere and workers face high relocation costs or inadequate information.

How it differs from other unemployment

The central issue is the suitability of workers for available jobs, rather than simply the total number of vacancies. Structural unemployment may therefore persist even when overall economic activity improves.

• Frictional unemployment arises during the normal process of searching for or moving between jobs; structural unemployment involves a deeper mismatch requiring adjustment.
• Cyclical unemployment results from deficient aggregate demand during an economic downturn; expanding demand alone may not resolve a structural skills gap.
• Disguised unemployment exists when more workers are engaged in an activity than are needed, so some can leave without reducing output; it is not the same as unemployed workers lacking the skills required by vacancies.

Policy response and significance

The principal response is to improve workers’ ability to enter occupations where demand exists. Reskilling and upskilling address the mismatch more directly than measures aimed only at raising aggregate demand.

• Vocational education, apprenticeships and employer-linked training can connect learning with workplace requirements.
• Labour-market information and placement services can help workers identify growing occupations and suitable training opportunities.
• Mobility support and income protection during retraining can make adjustment more feasible for displaced workers.
• Technological progress need not reduce total employment, but its gains can coexist with prolonged unemployment for workers whose skills lose relevance.