Structural unemployment-the unemployment that remains even at the peak of the economy`s upswings-is caused by an imbalance between the types and locations of available employment on the one hand and the qualifications and locations of workers on the other hand. When such an imbalance exists, both labor shortages and unemployment may occur, despite a balance between supply and demand for labor in the economy as a whole. Because technological change is likely to displace some workers, it is a major factor in producing structural unemployment. While technological advance almost invariably results in shifts in demands for different types of workers, it does not necessarily result in unemployment. Relatively small or gradual changes in demand are likely to cause little unemployment. In the individual firm or even in the labor market as a whole, normal attrition may
be sufficient to reduce the size of the work force in the affected occupations. Relatively large or rapid changes, however, can cause serious problems. Workers may lose their jobs and find themselves without the skills necessary to obtain new jobs. Whether this displacement leads to structural unemployment depends on the amount of public and private sector resources devoted to retraining and placing those workers. Workers can be encouraged to move where there are jobs, to reeducate or retrain themselves, or to retire. In addition, other factors affecting structural unemployment, such as capital movement, can be controlled. Increased structural unemployment, should it occur, makes it difficult for the economy to achieve desired low rates of unemployment along with low rates of inflation. If there is a growing pool of workers who lack the necessary skills for the available jobs, increases in total
labor demand will rapidly generate shortages of qualified workers. As the wages of those workers are bid up, labor costs, and thus prices, rise. This phenomenon may be an important factor in the rising trend, observed for the past two decades, of unemployment combined with inflation. Government policy has placed a priority on reducing inflation, but these efforts have nevertheless caused unemployment to increase.