Causes of Structural Unemployment - Essay Example

Running head: causes of structural unemployment 26th February Introduction For any country to increase its consumption and production capacity, it must ensure that the household incomes are increased by increasing the level of employment in the economy. However, in most cases efforts by the government to increase the Gross Domestic Product (GDP) are hampered by high level of unemployment. Despite the large amount of resources that most governments are using to educate and train young people, majority of them especially in the developing countries continue to face high long term unemployment. Unemployment is defined as the situation whereby individuals who are willing to work are not working and are actively seeking for work. In most cases, unemployment occurs when the economy in the recession. Globally, more than 200 million people are unemployed which is equivalent to 6% of the global workforce. There are different types of unemployment. These include classical unemployment, cyclical unemployment, structural unemployment, frictional unemployment and hidden unemployment. This paper seeks to discuss about the causes of structural unemployment as well as the ways of dealing with this kind of unemployment. Causes of structural unemployment Structural unemployment is defined as a type of unemployment whereby at a given wage level, the labour demanded is lower that the labor supplied. This happens when there is a mismatch between the number of jobs available in the economy and the number of people who are willing to work (Romer, 2011). The mismatch may occur if the unemployed individuals lack the necessary skills as needed by the organizations or they may be residing in different parts of the country far from where the job opportunities are available. Being one of the permanent types of unemployment, most economists argue that improvement on causes of structural unemployment can only take place in the long run. Based on the changing level of technology and obsolescence of certain technology, some experts and systems become of less importance (Ford, 2009). For example, with the emergence of modern forms of printing by use of computers, the use typesetters became insignificance. Another scenario of structural unemployment can be indicated when the economy experience an increase in the level efficiency. In most cases, when any of the economy sectors has high level of efficiency, the number of workers required goes down. For example, by mechanizing the work in the agricultural sector, few employees are needed to carry out the duties in the sector. This implies that some individuals who have qualification in agricultural related courses fail to get opportunities to work leading to unemployment. Similarly, when an organization acquires new machinery or modern information systems, they demand more skilled workforce to operates the machines thus the unskilled workers are first batch to be rendered unemployed. One of the major causes of structural unemployment is globalization and political changes. For example, if a government terminates the subsidies that it gives the firms, the production process can be terminated leading to low demand for the workers. Extent to which globalization can result to structural unemployment was indicated when the customs border for the states joining the EU was removed (Rifkin, 1995). This resulted to lack of demand for workers in the freight forwarding department. Another cause of this kind of unemployment is low relative competitiveness in the economy (Bell, 1940). It is worth to note that in the developing countries, majority of workers in the manufacturing industry receives lower wages as compared to those in the developed countries. As a result, manufacturers are attracted by the low wages in the developing countries since it reduces the costs of operations resulting to higher profits. However, it leads to low demand for workers in the developed regions resulting to structural unemployment. Just as the economy efficiencies can cause structural unemployment, market inefficiencies can also contribute to the same (Roger, 1999). For example, in the market that is efficient, there is a strong linkage between the employer and those seeking the jobs. This is not only based on the availability of the information in the market but due to the government policy of not tolerating incompetence by the hiring managers. On the other hand, due to discrimination among other vices, there lacks adequate connection between the employer and the job seekers. Mismatch between the jobseekers and the jobs being offered in the economy or by a particular industry is a major cause of the structural unemployment as indicated earlier. This may be due to difference on the level of skills by the potential workers and the skills as required by the firms. Additionally, the geographical location of the jobseekers may make them not to easily access jobs. A good example of the structural unemployment was depicted in 1990s. During this time, the global demand for computer experts hiked due to the tech bubble that occurred during that period. When the tech bubble collapsed in 2001, the computer specialists lost the jobs. After the house bubble emerged afterwards, the computer experts were forced to go for extra training in order to get jobs. Another cause of structural unemployment is minimum wage. According to some economists, marginal revenue product of the workers which is in most cases lower than the minimum wage makes such workers to remain unemployed since the employers cannot provide them with wages that are equivalent to their value and skills. Dealing with structural unemployment As indicated earlier, it takes a long time to address the structural unemployment. One of the major causes of this type of unemployment is improved technology. This implies that by preventing technological development, structural unemployment is eliminated. However, it is vital to note that by preventing technological growth, the living standards of individuals are affected. One of the major ways of dealing with structural unemployment is offering of education and training. This implies that if the jobseekers attend training program that offer the skills required by firms they will ultimately get the jobs being offered by the economy. Nevertheless, the level at which training and education will eliminate structural unemployment largely depends on the number of years a worker will remain in the employment before retirement (Sloman, 2003). For example, a young worker has many years of working thus he or she must incur higher investment expense that the worker will offset by the more years he or she will work before retirement. To the old jobseekers who are not employed, they have fewer years to train on the skills needed by their organization. For example, an individual with 60 years and the retirement age is 65 years will only for example train for 3-4 years. This implies that such a worker can only participate in active employment for only one year an aspect that has no significant impact on the economy (Simonazzi and Vianello, 2001). One of the major aspects that the government should adopt during the retraining of the workers is that it should ensure that the skills that the workers posses are preserved. In this way, it will ensure that such workers are ready to utilize the opportunities that emerge in the market. Another notable way of addressing structural unemployment is by ensuring that the government increases its exports. Through establishing a strong fiscal policies including provision of subsidies such as well structured corporate tax, governments would attract foreign investors who would ultimately result to an increase on the level of investment and exports (Howard, 1943). To avoid the loss of domestic manufacturing companies in the developed countries, the governments should emulate comeback strategies. This includes creating conducive atmosphere for investors and creating competitive wages. One of the notable countries that have adopted such a strategy is US. The US government has recently adopted a comeback in the manufacturing sector an aspect that led to generation of more than 29,000 jobs within the sector. Conclusion From the above discussion, it is clear that structural unemployment is a major issue that can jeopardize the expansion of the economy if not properly dealt with. Mismatch between the labor supplied and labor demanded results to structural unemployment. Such mismatch can be caused by various factors. For example improved technology while the jobseekers do not possess the required skills to operate the technology results to such unemployment. Other causes of structural unemployment include political factors and globalization, low relative competitiveness in the economy, market efficiency and market inefficiency among others. Taking into consideration the negative implication of structural unemployment on the economy for instance reduction of the national output, use of government resources in educating individuals and not employing them and loss of domestic and potential investors among others, it is vital to effectively address this problem. Offering of training and education is the major solution to deal with structural unemployment. Similarly, governments should expand on their exports while at the same time creating conducive atmosphere for investors. References Bell, S. 1940. Productivity, Wages and National Income, The Institute of Economics of the Brookings Institution. New York: McGraw-Hill. Ford, R. 2009. The Lights in the Tunnel: Automation, Accelerating Technology and the Economy of the Future. New York: Acculant Publishing. Howard, S. 1943. WPA and Federal Relief Policy. New York: McGraw-Hill. Rifkin, J. 1995. The End of Work: The Decline of the Global Labor Force and the Dawn of the Post-Market Era. New York: Tarcher–G.P. Roger, A. 1999. Unemployment: Macroeconomics. Cincinnati: South-Western. Romer, D. 2011. Unemployment. Advanced Macroeconomics. New York: McGraw-Hill. Simonazzi, A and Vianello, F. 2001. Financial Liberalization, the European Single Currency and the Problem of Unemployment. Heidelberg: Springer. Sloman, J. 2003. Economics. London: Prentice Hall. Read More