Structural unemployment

Date posted: April 25, 2012

We’re just now beginning to see some positive movement in the labor market, but many economists say it will be many years — maybe up to a decade — before unemployment returns to a normal rate of 5 percent. N.C. State University’s Mike Walden explains why.

“Well, it’s because we have different kinds of unemployment. Let’s think of an auto factory: … Let’s think of what happens in an auto factory when we have a recession. When a recession comes, fewer people buy cars. That auto factory’s going to layoff factory workers. However, when the economy comes back and people begin buying cars again, those workers will be called back to the factory line.

“In fact, we’re seeing that right now. We call that kind of unemployment cyclical unemployment because it goes with the cycle of business. Cyclical unemployment goes up when the economy goes into a recession. And then it recedes when we get back into an expansion.

“However, there’s another kind of unemployment we call structural unemployment. That unemployment occurs when a person is unemployed — becomes unemployed — and then really can’t find a job because they have found their skills are outdated. They simply don’t have the skills that businesses now need. That’s the kind of unemployment that’s harder to tackle. That’s the kind of unemployment that’s harder to change, because you really need to take that unemployed worker and retrain him or her.

“And unfortunately … right now we think that structural unemployment has gone up dramatically in our economy over the last couple of years. So that’s going to be a major, major challenge to tackle and get that structural unemployment down in coming years.”

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