Structural Unemployment

Unemployment comes in many forms. Sometimes, like we saw with short-term, frictional unemployment, it can actually indicate a healthy, growing economy. But what about persistent, long-term unemployment? That’s not so good.

When a large percentage of those who are considered unemployed have been without a job for a long period of time and this has been true for many years, it’s considered structural unemployment.

Structural unemployment can result from shocks to an economy that drastically alter the labor market. These shocks are not all bad – the rise of the Internet is one such example. Regardless, it can take a while for an economy to adjust to big changes.

These adjustments tend to happen faster in the United States than in Europe. This is most likely due to differences in labor regulations, and how those regulations affect a country’s ability to respond to shocks.

The United States’ employment law known as the “at-will doctrine” makes it so that an employee can quit, or an employer can fire, at any time for any reason. It’s legally much harder to terminate an employee in many European countries. This makes hiring riskier in Europe, resulting in a less dynamic labor market that isn’t able to quickly respond to shocks.

As you might guess, structural unemployment tends to count for a higher percentage of total unemployment in Europe than in the United States. This remains one of the most serious issues facing many European economies today.

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