Structural Unemployment, Here we Come!

As citizens of America, we are all reminded of the far distant goal of ‘The American Dream’; this means that everyone, regardless of race, is able to achieve success and prosperity. Even foreigners immigrate to America in the hopes of achieving ‘The Dream’. Yet, sadly after the financial crisis this dream has sadly descended to ‘bankruptcy and unemployment’. As America tries to get out of the lasting effects of the financial crisis, maybe we should look ahead of time and be prepared for surprises. The energy sector has become very important in the last 15 years with high oil prices and President Obama trying to enact ‘greener’ policies. An article from the BBC states how demand for natural gas will outpace that of coal and may even level with oil by 2035. In the article the IEA (International Energy Agency) mentioned that 60% of the coal power plants will be ‘retired in the next 20 years.’ Since gas is not as damaging to the environment as coal, environmentalists may have a slight smirk on their faces. Yet, America is one of the biggest (if not, the biggest) producer of coal and the loss of jobs will lead to structural unemployment; this could have far reaching effects than just higher unemployment benefits. I don’t claim to predict the future with great certainty (I am not a neoclassical economist), but, we can definitely assume that the coal industry will breathe its final breath in the not so distant future. Numerous fates could befall the country in the next 20 years, yet it’s good to have a policy for the evident decline of the coal industry.

First, what is structural unemployment? This particular form of unemployment is when people do not have the necessary skills to obtain jobs. This could happen when coal mines are retired and the miner’s skills are no longer required. This is a form of permanent unemployment as these workers just don’t have other skills to fill job vacancies.

If a decline in the coal industry will cause structural unemployment, what causes this decline? With growing demand for cheaper fuels such as natural gas plus the emerging market for oil shale has cast further doubt over coal’s future. Also, since coal tends to be harmful for the environment, a growing number of countries are investing in renewable energy (such as windmills, solar power and hydro power). All these factors are leading to the inevitable decline of the coal industry.

 

Since structural unemployment is a terror to any economy then we need to study some statistics. The amount of people who work in the coal mining industry is around 85000.

This is a sizable amount of people working in the coal industry and if 400,000 people are put out of work, the economy could suffer. This could be reminiscent of the time when Margaret Thatcher was Prime Minister of The United Kingdom (1979-1990). Thatcher went on a mission to get rid of most of the unprofitable coal industries. This endeavor led to strike action from coal unions and ultimately a loss in many coal mining jobs. The bottom graph exemplifies the amount of mining jobs that were lost during Thatcher’s tenure…

Structural unemployment can cause plenty of social and economic problems. Let’s try and explore what these problems are…

To begin with, as a great number of people are laid off from the mining sector they will lose their incomes. These unemployed people will spend less as they rapidly look for a new vocation (but, this is structural unemployment, their skills are not needed). As people spend less, there will be a ripple effect as business investment goes down. Then more workers may be laid off and this vicious cycle could commence. This argument is plausible because of the sheer number of workers in the mining industry in threat of being unemployed.

These newly unemployed people would require welfare from the government. The American government is already struggling to try and lower its debt, which currently stands at 92%. With more unemployment benefits to pay, it will be a greater burden on the tax payers as well. We already need to control the welfare system which is a great load on the fiscal budget every year. Thus, if the mining sector declines quickly then the American tax payers will have to take care of thousands of extra people.

With Structural unemployment, people are going to unemployed for a long time. We can safely assume that a person without a job for a long period of time will most probably become disheartened. As people become disinclined to search for new jobs (since they assume that their skills are no longer needed anywhere) they will continuously be locked in the poverty cycle; from the government’s perspective, this poverty cycle syndrome will be hard to cure.

Although there are a great number of obstacles in any solution that government partakes in. We must still try to help those downtrodden individuals. The government could teach these unemployed people new skills. I only wish it could be that easy. But, these workers could be reluctant to learn new skills or even naïve to know that their past skills are no longer needed.  There are going to be great challenges to any solutions that the government tries to implement; however, we could wait for the free market to work and ‘swallow up’ the unemployed. This method might not be foolproof because it could take the market weeks, months or even years to get these people employed. Furthermore, these people would get jobs that would be deemed ‘remedial’ compared to their earlier vocation of mining.

The coal mining industry will undergo its decline very soon, and there will be consequences to society. Structural unemployment is a grave problem and if the coal industry shuts down there could be higher unemployment, higher welfare benefits and a creation of poverty cycles. These terrible outcomes need to be averted and time will come where we, as the economists that we are, need to put our thinking caps on and try to think of solutions to the inevitable problem of structural unemployment.

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2 thoughts on “Structural Unemployment, Here we Come!

  1. This is an interesting outlook on how the “green” movement is not all good and how people seem to think that you can’t go wrong by adopting environmentally friendly methods. People, myself included, need to be reminded that for every positive force, there is an equally as negative one – potentially.
    If companies were more inclined to offer continuing advances in education to keep up with economic trends, layoffs could potentially be avoided and workers are considered greater assets. Even then, if companies were to invest more into their employees, those costs MIGHT be passed on to the consumers. It’s all very strategic and some are better at playing the game than others.

    Insightful article, thanks!

  2. Hey tatouer…

    Thanks very much for the complement! I share your thoughts exactly! We need more education for the constant decline in an industry competing with green technology (which we want so very badly!)

    Quite frankly I have not heard much about the politics concerning this decision. Not many state the problems concerning the potential job loses.

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