What causes structural unemployment?

Structural unemployment occurs when there is a mismatch between the skills that workers possess and the skills that are required by employers. This type of unemployment can arise from various factors, but one significant cause is advancements in technology. As technology evolves, certain jobs may become obsolete while new jobs requiring different skills emerge. Workers who are unable to adapt to these changes or retrain for the new types of positions may find themselves unemployed.

In contrast, changes in consumer demand typically lead to cyclical unemployment as demand for certain products or services fluctuates. Changes in the overall economy can affect employment levels as well, influencing unemployment rates based on economic expansion or contraction. An increase in interest rates primarily affects economic activity through lending and investment, which can influence cyclical unemployment but does not directly cause structural unemployment, as it doesn’t inherently change the skill requirements of the workforce. Thus, advancements in technology are a key driver behind the occurrence of structural unemployment.