Unemployment: Structural

Abstract

Structural unemployment differs from cyclical unemployment by not disappearing in cyclical booms. In economic theory, structural unemployment is usually analyzed in terms of the concept of equilibrium unemployment (the ‘natural unemployment rate’ in Friedman's terminology). Two elaborate concepts of equilibrium unemployment—the nonaccelerating inflation rate of unemployment (the NAIRU) and the unemployment rate that induces firms and workers to accept the same real wage (the PS–WS model) are used as analytical framework for the paper. These models are also related to search models for the labor market, in which unemployment equilibrium is defined as a situation where the number of individuals finding jobs equals the number of individuals who are separated from jobs. But it is argued in this article that it is reasonable to widen the concept of structural unemployment to also include unemployment persistence, that is, a tendency for unemployment to continue to be high for quite a while also after temporary unemployment-creating shocks. This article pinpoints various factors that influence the level of structural unemployment, which differs in time and place. It ends with a discussion of how structural unemployment is influenced by policy actions.