No . 676 UNEMPLOYMENT − STRUCTURAL by Assar Lindbeck

Structural unemployment differs from cyclical unemployment by not disappearing in cyclical booms. In economic theory, structural unemployment is usually analyzed in terms of the concept of equilibrium unemployment (the “natural unemployment rate” in Friedman’s terminology). Two elaborate concepts of equilibrium unemployment – the non-accelerating inflation rate of unemployment (the NAIRU) and the unemployment rate that induces firms and workers to accept the same real wage (the PS-WS-model) are used as analytical framework for the paper. These models are also related to search models for the labor market, in which unemployment equilibrium is defined as a situation where the number of individuals finding jobs equals the number of individuals who are separated from jobs. But it is argued in the paper that it is reasonable to widen the concept of structural unemployment to also include unemployment persistence, that is, a tendency for unemployment to continue to be high for quite a while also after temporary unemployment-creating shocks. The paper pinpoints various factors that influence the level of structural unemployment, which differs in time and place. It ends with a discussion of how structural unemployment is influenced by policy actions. 1. Definitions It is an old tradition in labor economics to distinguish between structural, frictional, and cyclical unemployment. Structural unemployment is then envisioned as a result of the institutional set up of the economy, including private and government organizations, types of market arrangements, demography, laws and regulations. In the literature, the importance of these institutional features for structural unemployment is particularly tied to their implications for demand for and supply of labor, price and wage formation, and the efficacy of search and matching processes in the labor market. Frictional unemployment may be regarded as a subset of structural unemployment, mainly reflecting temporary unemployment spells as the result of job search and