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Structural Unemployment
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Structural Unemployment

Structural Unemployment: Understanding the Long-Term Crisis

Definition and Context of Structural Unemployment

  • Structural unemployment refers to persistent, long-term unemployment affecting a significant portion of the workforce over many years.
  • In Europe, countries like Italy and France have maintained unemployment rates around 10%, while Spain has seen rates near 20%. The U.S. has a lower long-term unemployment rate at just 12.7%.

Causes of Structural Unemployment

  • Major economic shocks, such as the oil crises of the 1970s or trade changes with China in the 1990s, can lead to structural unemployment by altering job availability and types.
  • European labor regulations contribute to higher structural unemployment by complicating employer responses to these economic shocks.

Labor Market Regulations: A Comparative Analysis

  • The At-Will Doctrine in the U.S. allows employers to terminate employees without cause, promoting flexibility in hiring.
  • In contrast, European countries like Portugal require "just cause" for dismissals, leading to complex processes that deter hiring.

Impact of Employment Rigidity on Job Market

  • High rigidity in employment laws correlates with increased long-term unemployment; more rigid markets see higher percentages of prolonged joblessness.
  • Generous unemployment benefits in Europe (e.g., up to twice what is offered in the U.S.) may reduce urgency for job seekers but can also prolong overall unemployment durations.

Case Study: Labor Market Issues Illustrated Through Riots

  • The riots in Paris (2005), driven by high youth unemployment among minorities, highlight how restrictive labor laws create barriers for young workers entering the job market.
  • Proposed reforms aimed at easing employment restrictions faced backlash from established student groups concerned about potential job insecurity.

Consequences of Labor Law Restrictions

  • The divide between "Insiders" (those with stable jobs protected by labor laws) and "Outsiders" (those facing high unemployment and temporary work conditions) illustrates systemic issues within labor markets.

Cyclical Unemployment in the European Union

Overview of Cyclical Unemployment

  • The discussion introduces cyclical unemployment as a specific type of unemployment that arises due to economic downturns within the European Union.
  • It highlights the importance of understanding different types of unemployment, particularly in relation to economic conditions and policies.
Playlists: Economics [Intermediate] Pt.1 Principles of Economics: Macroeconomics Unit 6: Unemployment and Labor Force Participation
Video description

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. Subscribe for new videos: http://bit.ly/1Rib5V8 Macroeconomics Course: http://bit.ly/1R1PL5x Next video: http://bit.ly/2fxJKnE