Structural unemployment refers to unemployment caused by fundamental changes in economic structure, such as the technological revolution. The technological revolution makes some skills obsolete and makes people previously employed unemployed. When unable to adapt and renew their skills, they become unemployed forever.
Together with frictional unemployment, structural unemployment will remain even when the economy operates at full employment. That contrasts with cyclical unemployment – the result of seasonal variations in production – which can be changed by economic policies.
Changes in the economic structure make it difficult for job seekers to find work and for employers to employ workers. Although job vacancies are available, they generally require new skills that are not shared by many unemployed workers.
Structural factors can occur for several reasons. In addition to technological change, they can also occur due to changes in demand, which causes a decline in industries that previously provided jobs. Another factor is the change in the geographical location of work and the rigidity of the labor market.
Structural unemployment solution
Unemployment due to structural problems cannot be cured by fiscal or monetary policies. Both policies only raise aggregate demand, which will reduce Keynesian unemployment. Likewise, wage cuts also do not improve unemployment.
Healing requires a significant investment in a new industry. The government needs to invest in education or advocacy so that the unemployed can renew their skills.