What Is Structural Unemployment? Causes and Examples

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Structural unemployment is long-lasting unemployment that exists because the skills, training or location of available workers no longer match the jobs employers need to fill. Openings exist, but the people looking for work cannot take them without retraining, relocating or changing occupations. It comes from lasting shifts in how an economy is organized, such as new technology, global competition, changing consumer demand or government policy, rather than from a temporary slump in spending.

What structural unemployment means

The term has three parts.

Involuntary. The structurally unemployed want to work and are usually looking for work. They have not chosen to step away from the labor market.

A mismatch with existing demand. The economy has vacancies, sometimes many of them. The problem is that the vacancies call for skills the unemployed lack, or sit in regions where the unemployed do not live and cannot easily move.

Rooted in structure, not the cycle. The demand for a particular kind of labor has changed permanently or for a very long period. A textile mill that closed because production moved overseas will not reopen when consumer spending picks up.

How structural unemployment works

Because it is driven by forces outside the business cycle, structural unemployment can keep the unemployment rate elevated long after a downturn has ended and can raise the natural rate of unemployment itself.

The skills mismatch and the location mismatch

A skills mismatch happens when the work available requires training that job seekers do not have. A machine operator whose plant automates may find openings for technicians who program and maintain the new equipment, but those roles require knowledge the operator never needed.

A geographic mismatch happens when jobs exist in one place and workers are in another. An industry may concentrate in certain cities while workers remain in towns where the old employer has closed. Moving is costly, and family ties, housing and local networks hold people in place.

Many real cases combine both: the new jobs are in a different industry and a different region.

Why it persists

Structural unemployment tends to feed on itself. The longer someone is out of work, the more their existing skills erode and the further they fall behind changes in their field. Employers may also view long gaps in a résumé negatively. A worker who lost a job for cyclical reasons can therefore drift into structural unemployment if the spell lasts long enough. Economists call this lasting effect of a temporary shock hysteresis.

Technology adds pressure over time. As tools and processes change more quickly, workers without current skills risk being pushed to the margins, and even skilled workers can find their expertise made redundant. The growing use of artificial intelligence (AI) is one more source of this kind of obsolescence.

Reading a structural unemployment graph

There is no single official structural unemployment graph, but three diagrams commonly appear in textbooks:

1. Labor market for one occupation. Draw labor demand and labor supply for, say, landline telephone installers. A permanent fall in demand shifts the demand curve left. At the old wage, the quantity of labor supplied exceeds the quantity demanded, and the gap represents workers whose skills the market no longer wants. In a neighboring market, such as mobile network technicians, demand shifts right and vacancies appear. The two gaps do not cancel out, because installers cannot instantly become network technicians.

2. The Beveridge curve. This plots the job vacancy rate against the unemployment rate. Normally, the two move in opposite directions along the curve: more vacancies, less unemployment. If the whole curve shifts outward, the economy has more unemployment for any given number of openings. That shift is a classic sign that matching between workers and jobs has become less efficient, which is consistent with rising structural unemployment.

3. AD/AS diagram. The long-run aggregate supply (LRAS) curve sits at potential output, the output produced when unemployment equals its natural rate. A rise in structural unemployment raises the natural rate and lowers potential output, shifting LRAS to the left. Boosting aggregate demand in this situation mostly raises prices rather than putting the structurally unemployed back to work.

Measuring it: formula and worked example

No government survey counts “structurally unemployed” people directly. Statistical agencies report total unemployment, and economists estimate the structural portion from models, vacancy data and the length of unemployment spells.

The building blocks are:

Unemployment rate = (Number of unemployed ÷ Labor force) × 100

Natural rate of unemployment ≈ Frictional rate + Structural rate

Cyclical rate = Actual unemployment rate − Natural rate

Hypothetical example. Suppose a country has a labor force of 10 million people and 600,000 of them are unemployed.

• Unemployment rate: 600,000 ÷ 10,000,000 × 100 = 6.0%
• Assume economists estimate that 200,000 people are between jobs or newly entering the workforce (frictional): 2.0%
• Assume 150,000 people are unemployed because their industries have shrunk or their skills are outdated (structural): 1.5%
• Natural rate: 2.0% + 1.5% = 3.5%
• Cyclical unemployment: 6.0% − 3.5% = 2.5%, or 250,000 people

The split matters for policy. If the economy recovers fully, the hypothetical cyclical 2.5% should disappear, but the structural 1.5% would remain. And if the structural group grows to 300,000 because a major industry closes, the natural rate rises to 5.0%. Then even a fully healthy economy would show 5% unemployment.

Causes of structural unemployment

Several triggers commonly produce structural unemployment:

• Technological change. As industries adopt new processes, some roles become obsolete. Firms also use technology to cut costs, which can reduce the number of workers they need. Automation in manufacturing and software that replaces clerical tasks are familiar examples.
• Globalization and competition. Differences in wage rates around the world give companies an incentive to move production abroad. When a country loses its comparative advantage in an industry, production can shift to lower-cost locations. This does not automatically create structural unemployment: workers with transferable skills and the ability to relocate often find new jobs quickly, while those with industry-specific skills in regions with few alternatives are the most likely to become structurally unemployed.
• Shifts in consumer demand. When tastes change, whole product lines can shrink. Demand that moves from print to digital media, or from one energy source to another, changes which workers employers need.
• Poor training or limited education programs. Without access to retraining, the mismatch lasts longer even when new jobs are being created.
• Government policy. Policy changes can reshape demand for labor in particular industries, for example through new regulations, the removal of subsidies or trade agreements. Rigid labor rules can also slow hiring and reduce job mobility, which keeps workers stuck in shrinking parts of the economy.
• Barriers to moving. High housing costs, homes worth less than their mortgage, and family obligations can keep workers in regions where jobs have disappeared.

Examples of structural unemployment

From landlines to mobile phones

As mobile phones spread, the telecommunications industry moved away from landline equipment and services. Workers who learned mobile technology could find new roles. Those whose expertise was tied to the old systems and who did not retrain faced structural unemployment. Demand for telephone services did not fall; demand for a specific set of skills did.

U.S. manufacturing

Over the past three decades, hundreds of thousands of well-paying U.S. manufacturing jobs were lost as production moved to China and other lower-cost locations. Workers who could not find work in another field became structurally unemployed, often in towns where the factory had been the main employer.

The 2007 to 2009 recession

The global recession of 2007 to 2009 caused cyclical unemployment, but it also added to structural unemployment in the United States. The U.S. jobless rate rose above 10% in October 2009, and the average length of unemployment spells increased substantially for millions of workers. As those spells dragged on, skills deteriorated, making it harder to find and keep jobs once hiring resumed.

Housing played a part too. Moving to a job in another city would have meant selling a home at a large loss, which many people were unwilling to do. That kept workers in place and widened the gap between where the unemployed lived and where jobs were.

COVID-19

At the start of the pandemic, the U.S. unemployment rate more than quadrupled, reaching 14.8% in April 2020. Most of those job losses were temporary and therefore cyclical in nature. Some occupations, however, went through lasting changes that led to prolonged unemployment. Many people also left the labor force. By the end of 2022, the unemployment rate had fallen to 3.5%, but Federal Reserve Chair Jerome Powell suggested that figure could understate slack because it excluded people who had stopped looking for work. Part of that hidden slack reflects deeper, more structural changes to the economy after the pandemic.

France

France is a frequently cited case of structural unemployment linked to labor market rules. A large share of its workforce held temporary contracts with little chance of moving into permanent positions, which reduced job mobility and left many workers without the opportunity to build new skills. When Emmanuel Macron took office in May 2017, the unemployment rate stood at 9.5%. He pledged to loosen the country’s strict labor laws, and his government negotiated changes with labor unions. Unemployment fell to 8.2% by the end of 2019 and was 7.3% in the third quarter of 2022. In that same quarter, France’s long-term unemployment rate (people out of work for at least one year) was 2%, its lowest level since the second quarter of 2009.

How structural unemployment affects the economy and people

For individuals, the costs are heavy and long-lasting. Spells tend to be longer than in cyclical downturns, income losses can be permanent if a worker re-enters at a lower wage in a new field, and skills that took years to build lose their market value. The solutions carry their own costs. Relocating may mean selling a home at a loss. Retraining may mean paying for courses while still working another job, especially when employers will not fund it, and its opportunity cost in wages forgone is part of the decision.

For the economy, structural unemployment means labor as a factor of production sits idle or underused even though employers have unfilled positions. That lowers potential output and GDP. It raises the natural rate of unemployment, which limits how far demand-side policy can push unemployment down before inflation pressure builds. Concentrated job losses can also hollow out regional economies, reducing local tax bases and spending.

Reducing structural unemployment

At the policy level, governments use:

• Retraining and vocational education programs tied to occupations that are hiring
• Apprenticeships and partnerships between employers and schools
• Relocation assistance, which some governments subsidize, so workers can move to regions with openings
• Labor market reforms that increase mobility, as in the French example
• Adjustment assistance for workers displaced by trade or industry closures

At the individual level, workers can lower their exposure by:

• Continually updating skills, so they are not left behind as their field changes.
• Building a professional network. Referrals help a worker move into a new field where they lack the experience of established candidates.
• Tracking industry trends such as innovation, sales projections and hiring, to see early when a role is heading toward obsolescence.
• Considering relocation when companies and demographics shift.

Structural unemployment vs. other types of unemployment

Structural vs. cyclical unemployment

Both are involuntary: people want work but cannot find it. The differences lie in cause, length and depth. Cyclical unemployment follows the business cycle. It rises in recessions, when spending falls, and can be triggered or worsened by contractionary monetary or fiscal policy. It usually eases as the economy recovers.

Some industries are more exposed to one than the other. Real estate, for example, does change with innovation, but its job losses are driven mostly by recessions and tight monetary policy, which makes them largely cyclical. Structural unemployment, by contrast, remains even when the economy is growing.

Structural vs. frictional unemployment

Frictional unemployment is the short-term unemployment of people moving between jobs, entering the workforce or returning to it. It is often voluntary: someone leaves a job to look for a better fit, go back to school or take on a less demanding role, and in many cases could return to their old type of work. It tends to be individual, case by case.

Structural unemployment is not chosen and is tied to entire industries or regions. A person who quits to switch careers is frictionally unemployed; a person whose occupation has disappeared is structurally unemployed.

Structural vs. seasonal unemployment

Seasonal unemployment comes from predictable changes in demand during the year. Snowplow operators, tax preparers and holiday retail staff often do not work in those roles year-round. These spells are usually short, often less than a full year, and the workers typically know in advance that the work is temporary. Structural unemployment has no such cycle and no expected return of the old job.

Structural unemployment vs. underemployment

Underemployment describes people who have jobs but work fewer hours than they want or work in roles below their skill level. A structurally displaced engineer who takes a part-time retail job is underemployed, no longer unemployed. Structural shifts can cause underemployment, but the official unemployment rate does not count underemployed workers as unemployed.

Limitations of the concept

• The categories blur. As the 2007 to 2009 recession showed, cyclical unemployment can turn into structural unemployment if spells last long enough, so assigning a given worker to one category is often a judgment call.
• Duration is not a definition. Long-term unemployment is a useful signal, but a long spell can reflect a weak economy rather than a skills gap.
• Hidden slack. People who give up looking are not counted as unemployed, so structural problems can show up as lower labor force participation rather than higher unemployment.
• Policy disagreements. Economists differ on how much of a given rise in unemployment is structural. Calling unemployment structural when it is really cyclical can lead policymakers to withdraw demand support too early.

FAQs

The Bottom Line

Structural unemployment matters most to workers with industry-specific skills in regions with few alternatives, and to policymakers judging how far demand support can lower joblessness. A recovery alone will not erase it, so retraining, relocation help and labor market reforms do more of the work. Workers can reduce their exposure by updating skills, building networks and watching industry trends.