IBonomicsStructural Unemployment – Labour Market Impact
This diagram illustrates structural unemployment in the labour market, shown by a leftward shift in the labour demand curve (ADL).
adl1
ADL1: Initial demand for labour before structural change.
adl2
ADL2: New, lower demand for labour after structural change.
asl
ASL: Aggregate supply of labour, assumed unchanged in the short run.
w1
W1: Initial equilibrium wage before the shift in demand.
w2
W2: New, lower equilibrium wage after demand falls.
e1
E1: Original employment level before the structural shift.
e2
E2: New, lower employment level after the shift.
unemployment
Unemployment caused by the fall in demand, represented by the gap between E1 and E2.
Structural unemployment occurs when there is a mismatch between the skills workers have and the skills demanded by employers. It is often caused by technological change, automation, offshoring, or long-term industry decline.
Initially, the labour market equilibrium is at wage W1 and employment E1, where ADL1 intersects ASL.
A shift from ADL1 to ADL2 reflects a fall in demand for certain types of labour due to structural changes.
The new equilibrium is at wage W2 and lower employment E2.
The difference between E1 and E2 represents workers who are unemployed due to their skills no longer being in demand.
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