Tag Archives: Structural Unemployment

Hays Global Skills Index

A colleague alerted me to the Hays Global Skills Index. It is a complex, statistically-based report designed to assess the dynamics of skilled labour markets across 33 countries.

Seven indicators make up the Hays Global Skills Index

  1. Education flexibility – this indicator relates to how flexible the education system is to meet the changing demands of the labour market. Low score = more likely.
  2. Labour market participation – greater participation means more potential workers. Low score = larger pool of workers
  3. Labour market flexibility – this relates to government regulations around employing people. Low score = less red tape
  4. Talent mismatch – do the skills of the labour force match those of the jobs that are in the market place? Low score = employers find it easier to get labour with appropriate skills
  5. Overall wage pressure – skills shortages are an issue if wages are growing faster than the cost of living. Low score = wages are not rising quickly.
  6. Wage pressure in high-skill industries – Some industries require higher‑skilled staff and makes them more vulnerable to skills shortages. Low score = wages in high-skill industries are growing slower than wages in low-skill industries.
  7. Wage pressure in high-skill occupations – a rise is wages of high-skilled occupations means that there is a shortage. Low score = wages for high-skilled occupations are rising more slowly than those in low-skill occupations.

In looking at the figure below seven indicators above are given equal weight when calculating the overall Index score for each country. Each indicator measures how much pressure different factors are exerting on the local labour market.

Higher scores mean that a country is experiencing more pressure than has historically been the case.

Lower scores mean that a country is experiencing less pressure than has historically been the case.


Skilled labour market conditions vary markedly in different parts of the world. Grouped into large overarching regions, however, it is possible to discern some headline patterns. The overall Index score increased slightly from 2015, as changes in skilled labour market conditions in Europe and the Middle East (EME) more than offset a very slight loosening in the Americas and Asia Pacific. The annual change in Index scores should not mask the overall position that suggests skilled labour markets in the Americas and EME remain tight relative to the past, while Asia Pacific remains little changed from historic trends. Source: Hays Index 

European Structural Unemployment

Here is a great graphic from the Wall Street Journal which identifies the structural unemployment, productivity levels and the unemployment rate. Structural unemployment refers to unemployment arising from changes in demand or technology which lead to an oversupply of labour with particular skills or in particular locations. Structural unemployment does not result from an overall deficiency of demand and therefore cannot be cured by reflation, but only by retraining or relocation of the affected work-force, some of which may find work at low wages in unskilled occupations. Structural unemployment is distinct from frictional unemployment, which is essentially a short-term phenomenon.

* Spain and Greece have been highlighted as economies with significant unemployment problems.
* Ireland although has high unemployment does have encouraging productivity levels compared to other EU countries
* Norway seems to have things right – low unemployment and high productivity
* Eastern bloc countries tend to have lower productivity levels.

Structural Unemp Euro

OECD outlook for employment

The OECDs annual employment report makes for sombre reading especially for those European countries. The Economist reports that policymakers in Europe, where projections remain especially poor, need to focus on creating demand. There is good discussion on structural and cyclical unemployment and especially the problem of youth unemployment. Basically the OECD have stated that there needs to be more focus on demand but with austerity measures in place where is it going to come from? Good introduction to unemployment.

Spanish Unemployment and the Hidden Economy

Spanish EU UnempThe level of unemployment in Spain has reached worringly high levels with over 25% of the labour force out of work. More of a concern is the 57% of the labour force under 25 without a job. However with these levels, especially amongst the youth, one would think that social unrest, crime rates etc would be widespread in the country. There is a belief that the hidden economy (working in cash jobs and also claiming benefit) hides the real figure and, like in Ireland, the labour force is contracting as those without job prospects stay on in education or emigrate.

However in Spain the education system doesn’t do any favours for those students that fail exams when they are 16 – if you fail you are out the school system. This is all very well if there are jobs/trades available for those without qualifications. In 1984 the late Margaret Thatcher said “Young people ought not to be idle. It is very bad for them”. Those that start their careers on the dole are more likely to have lower wages and more spells of joblessness later in life, because they lose out on the chance to acquire skills and self confidence later in their formative years. It is estimated that there are over 310m young people (16-25) that are looking for work. One of the main issues to be addressed is the mismatch between education and the labour market or commonly referred to as structural unemployment.

To reduce the level of unemployment in Spain the economy’s net job growth needs GDP of 1% or more but the Spanish government doesn’t forsee that until 2016.

Structural unemployment – the big mismatch

From reading the McKinsey report on the mismatch between the skills of the unemployed and the jobs available – Structural Unemployment – here is an interesting graph which I have put together from their data. The lack of skills is a common reason for entry-level vacancies in the nine economies below. It seems that employers and those in education don’t communicate much as to the future requirements of labour.

Structural Unemployment

US Beveridge Curve – a concern for long-term unemployment.

I did an earlier post on the Beveridge Curve which explained what it shows – The Beveridge curve plots the job openings (vacancy) rate against the unemployment rate. It is downward sloping as job vacancies tend to be low when unemployment is high and vice versa. As you can see from the chart the pink dots indicate that job vacancies are not being taken by those who are unemployed which indicates that there is a mis-match in the US labour market. This suggests that structural unemployment is on the increase and unlike cyclical unemployment cannot be reduced by an expansionary monetary policy. Simply put easing monetary policy to reduce structural unmeployment will just create inflation. As cyclical unemployment becomes structural this does have implications for long-term unemployment and the natural rate of unemployment – that is the level of unemployment that is achievable without generating inflation.

Structural Unemployment – Unemployment arising from changes in demand or technology which lead to an oversupply of labour with particular skills or in particular locations. Structural unemployment does not result from an overall deficiency of demand and therefore cannot be cured by reflation, but only by retraining or relocation of the affected work-force, some of which may find work at low wages in unskilled occupations.

Structural Unemployment – The Beveridge Curve

There are those that see the problem of unemployment in most economies (but especially the US) as a structural issue. This refers to the mismatch between the jobs that are available and the skills that people have. Cyclical unemployment can be reduced by boosting demand – dropping taxes and increasing government spending (fiscal policy) and lowering interest rates (monetary policy). However, if unemployment is mainly structural patience is needed to wait for the market to sort things out, and this takes time.

The Beveridge curve is an empirical relationship between job openings (vacancies) and unemployment. It serves as a simple representation of how efficient labour markets are in terms of matching unemployed workers to available job openings in the aggregate economy. Economists study movements in this curve to identify changes in the efficiency of the labour market. It is common to observe movements along this curve over the course of the business cycle. For instance, as the economy moves into a recession, unemployment goes up and firms post fewer vacancies, causing the equilibrium in the labor market to move downward along the curve (the red arrows in the figure above). Conversely, as the economy expands, firms look for new hires to increase their production and meet demand, which depletes the stock of the unemployed – see graph below.

Careful analysis of Beveridge Curve data by economists Murat Tasci and John Lindner at the Cleveland Federal Reserve shows that it’s behaving much the way it has in previous recessions: there are as few job vacancies as you’d expect, given how desperate people are for work – see graph below. The percentage of small businesses with so-called “hard-to-fill” job vacancies is near a twenty-five-year low, and open jobs are being filled quickly. And one recent study showed that companies’ “recruiting intensity” has dropped sharply, probably because the fall-off in demand means that they don’t have a pressing need for new workers.

According to James Surowiecki from The New Yorker structural issues aren’t irrelevant, of course; there are certainly plenty of construction workers who are going to have start plying a new trade. But what defined the recent recession was the biggest decline in consumption and investment since the Depression. Dealing with that is the place to start if we want to do something about unemployment. The structural argument makes government action seem irrelevant.

Problems of the long-term unemployed

The New York Times recently ran a very interesting article on the long-term unemployed. Economists and politicians have been debating whether the problems in the job market are primarily cyclical – influenced by the business cycle or structural – the decline of a certain occupations. What they seem to miss is the fact that cyclical can be structural as workers become less employable the longer they are out of work

It is acknowledged that the likelihood of finding a job falls considerably the longe the person has been out of work. Research by Robert Shimer from the University of Chicago averaged job-finding data from the Bureau of Labour Statistics from January 1976 to October 2007, looking at only people who either lost or left jobs before becoming unemployed (that is, excluding people who were new entrants or re-entrants to the labor force).

The horizontal axis shows how long someone has been unemployed, and the vertical axis shows the likelihood that the person will find a job in the next month. Shimer found that 51 percent of workers who had been unemployed for one week obtained work in the following month, but the share declined sharply after that.

Over recent decades, a person out of work for a week was nearly four times as likely to find a job the next month as a counterpart who’d been out of work for a year.

Furthermore, the re-employment data by week shows the same trend in that the longer you are unemployed the less likely you are to get back into the labour force – see graph below:

But the experience of unemployment itself also seems to damage workers’ prospects.

1. Employers will look at a yawning gap in a worker’s resume and wonder why no one else would take this applicant. It’s the “lemon” issue that also applies to housing and used cars: The fact that a person has been unemployed for so long (or that, say, a house has been on the market so long) is a signal that something is defective, even if the defect is not obvious to the naked eye.
2. Employers may also worry that jobless people have gotten out of the habit of working, which appears to be a valid concern.

But the other effects of long-term unemployment may be more permanently scarring. This is a phenomenon Europe appeared to go through starting in the 1980s, as an entire class of workers became very difficult to put back to gainful employment.