Structural unemployment

Structural unemployment occurs when workers are displaced from the labour market as a result of changes in the overall pattern of demand for labour. As the pattern of demand changes, some industries decline, and fewer workers are required in these declining industries. Immobility of labour can prolong the period of structural unemployment.

Changes in the pattern of demand often reflect the different income elasticity of demand for goods and services. As real incomes rise, households may switch from manufactured necessities to luxury goods, and increase their demand for services, such as financial services and travel and tourism. This means fewer workers are required in those industries with low or negative income elasticity, towards those with higher income elasticity. As a result, the structure of an economy can slowly change, with some jobs and skills not required, leaving some workers displaced from the labour market.

Globalisation has increased structural unemployment in those industries exposed to global free trade (or to unfair competition). Similarly, economic shocks can shift the pattern of demand - fewer people eating out during Covid-19 lockdown has resulted in a shift in the pattern of food and drink consumption, with workers in the leisure economy being displaced. However, this can only be classed as structural unemployment if the change in the pattern of consumption is permanent.

In many instances, structural unemployment has a regional dimension, with declining industries in one region and emerging and growth industries in another. Immobility of labour plays an important role in sustaining structural unemployment.