Structural Unemployment and Public Policy

This paper reviews a theoretical controversy concerning the aggregative and structural explanations of the high rates of unemployment recently experienced in the United States and Canada. The paper examines alternative definitions and theories of structural unemployment.

Much of the analysis of structural unemployment has been concerned with : (a) the long recognized differences between unemployment rates by occupation, by region, etc. (structural differentials); (b) whether there have occurred changes in these unemployment rate differentials (See footnote 1 of the text for references to Canadian studies of this type). The contributions of Berman, Lipsey, Reder and Kalachek to the debate are reviewed ( see footnote 7, 8, 9 and 10 for references to these papers).

Berman and Lipsey have presented very similar policy type definitions of structural unemployment which view it basically as a residual of unemployment which can be removed by labour market adjustment policies, some of which are profitable in terms of financial costs and benefits while others commend themselves for non pecuniary reasons (see sections Ci and Cii of the paper).

The previously mentioned authors (especially Lipsey) have established to the author's satisfaction that as long as we agree that there is some deficient-demand unemployment in the economy we can tell nothing from the structure of the existing unemployed or of the newly unemployed concerning the validity of the structural hypothesis. This is so because structural change makes many of the existing unemployed not reemployable, a fact which can be discovered only by trying demand expansion and not by analysis of the existing stock of the unemployed.

In other words, analysis of the existing stock of unemployment cannot help to ascertain whether structural changes have occurred in the composition of unemployment because the structure of the unemployed will change, and differ from the structure of the employed, after demand falls, as well as after a « readjusting layoff » due to technological changes (see section Dii).

The study closes with an analysis of reasons why non-selective and selective public policies should be applied simultaneously and continuously in dealing with unemployment, a conclusion not in accordance with that derived from Lipsey's model. In short, the author believes that the use of selective policies will change the trade-off between inflation and unemployment such that when applied with non-selective policies, it will be possible for the economy to attain « non-inflationary » full employment and a more equitable and efficient distribution of employment opportunities.