Structuralunemployment refers to long-term unemployment. Specifically, thecauses of structural unemployment cannot be cured by the use ofmonetary or fiscal policies. The government adopts to use monetarypolicies to stimulate the economy and primarily include an increaseor decrease in the money supply. For instance, an increase in moneysupply increases demand and consequently, there is the productionthat later creates employment. Fiscal policies entail thegovernment’s use of other economic factors such as interest ratesto curb unemployment. When the interest rates go down, businesses canborrow money to invest, and consequently, they create employment(Laezar & Spletzer, 2012).
Althoughthe fiscal and monetary policies are used to provide solutions toissues like unemployment, they may not provide a solution tostructural unemployment. The long-term nature of structuralunemployment results from a mismatch of skills in an economy. Forexample, many unemployed construction workers and few constructionvacancies, combined with few unemployed nurses and many nursingvacancies may characterize an economy. The only way to provide enoughnurses is by enhancing the skills of the available workforce. Theprocess of enhancing the skills takes a long time and is one of thecharacteristics of structural (Laezar & Spletzer, 2012).
Accordingto Belsie (2015), structural unemployment is caused by a shortage ofsupply of labor. Demand causes are cyclical and do not persist for along period. Deficiencies in the supply of labor are due to fiscalpolicies of the government. For example, when the government reducesthe amount of unemployment insurance, more people will begin lookingfor employment. On the contrary, increasing the number of housingsubsidies may lower the value of work and increase the number of theunemployed. The structural rate of unemployment is similar to changesin the structure of unemployment. For example, a change in thestructure of the unemployment due to an increase in the percentage oflong-term unemployed workforce indicates structural unemployment(Belsie, 2015).
Theincreased rate of unemployment during the 2007- 2009 recession highlycorrelates with industries. Specifically, industries such asconstruction, retail, manufacturing and trade were characterized withhigh unemployment rates. Besides, an occupational mismatch is alwayshigher than the industrial mismatch. Occupational mismatch is alsoless sensitive to business cycles. The aging of the workforce reducesthe rate of unemployment by 8%. The reduction is mainly due toreinforced changes in the education of the workforce and a shifttowards service jobs. Service jobs are associated with a four-decadetrend composed of lower unemployment rates (Belsie, 2015).
Structuralunemployment is caused by a shortage in the supply of labor due to amismatch of skills, therefore policies should aim at solving laborsupply factors such as skills and education. Structural unemploymentis mainly long-term, and consequently, policies should aim at thelong-term situations of an economy and specifically, supply relatedfactors. The government should wisely choose its fiscal policies assome could contribute to structural unemployment. Structuralunemployment is greatly created by failures in the industry sectorhence policies should aim at avoiding such failure (Laezar&Spletzer, 2012).
Policiesshould provide for the creation of more service jobs as opposed toindustry jobs since they are related to lower structural unemploymentrates. Policies should aim at reducing the retirement age since itcreates more room for employment. Policies should aim at increasingthe education of the workforce to reduce occupational mismatch thatis more insensitive to business cycles (Belsie, 2015)
Belsie,L., (2015). The U.S labor market: Status quo or a new normal? TheNational Bureau of Economic Research.Web.Retrievedon 7 Nov. 2015 from http://www.nber.org/digest/jan13/w18386.html
Lazear,E.P, & Spletzer, J. R., (2012). The United States labor market:Status quo or a new normal? TheNational Bureau of Economic Research,18386,pp.2-33.Web.Retrievedon 7 Nov. 2015 from http://www.nber.org/papers/w18386