To see how structural unemployment is likely to emerge, consider the employment of Alton Abernathy. For the better part of his adult life, Alton attached "needle arms" to record players at the HyFy Electronics factory in Shady Valley. Alton was the best needle-arm attacher who had ever worked at the HyFy Electronics factory. For over thirty years Alton attached needle arms to record players.

Over the course of Alton's career, technological progress occasionally threatened to replace phonograph records with newer sound recording systems that might have eliminated Alton's job of attaching needle arms. First, came 8-track tapes; fortunately a false alarm and a passing fad. Record players, and Alton's employment lived on. Next, came cassette tapes; a bigger threat, but not big enough to change the public's fancy for record players. Alton's needle-arm attaching employment lived on.

Then came CDs. A dark day for Alton. Digital compact disc technology rapidly replaced phonograph record technology as the primary means of distributing recorded music. The HyFy Electronics factory ceased the production of record players, closed its doors, and in so doing eliminated Alton's needle-arm attaching employment. In its place, a new factory manufacturing compact disc players, OmniDisc Unlimited, began operation. Much of this factory was automated. The skills needed to manufacture compact disc players involved computer programming and high-tech equipment operation. Needle-arm attaching was no longer a useful skill.

At the age of 58, Alton had become structurally unemployed. Many jobs were available at the new OmniDisc factory, but Alton had neither the skill, training, nor education needed. Technological progress had claimed another victim.

The Bad

• Personal Hardships: The primary problem with structural unemployment is the personal hardships inflicted on the unemployed workers. Even if structurally unemployed workers obtain income from unemployment compensation, welfare, and other transfer payments, they cannot purchase as many goods and services and thus experience a drop in living standards.

  There are also the psychological hardships experienced by structurally unemployed workers. In many cases, workers like Alton are unemployed after decades at a particular job. People generally derive a sense of "self worth" from their jobs, that someone values their work and likes them enough to give them a paycheck. While all unemployed workers lose this self-esteem reinforcement, for structurally unemployed workers the loss can be particularly devastating.

  The reason is that society overall, not just a given firm, has decided that the structurally unemployed worker is "not valuable." After a lifetime of being "valuable," the workers is now "not valuable." To make matters worse, the technological progress creating the structural unemployment means that there is little hope that a structurally unemployed worker will ever become "valuable" again (short of retraining).



• Lost Production: Of course, when Alton becomes unemployed, the economy loses out on his productive activity. While society might no longer demand record players, Alton could be engage in the production of another good. This lost production might be a small blip in a multi-billion-dollar annual gross domestic product, but it is a blip nonetheless. And considering that a few million workers are structurally unemployed at any given time, these seemingly insignificant blips add up to significantly lost production for the economy.

The Good

While Alton most definitely suffers with the advent of CD recording technology, millions of other folks benefit from this technological advance. People ARE better off with the new technology than the were with the old. Of course, one might question whether an improvement in something as "inconsequential" as better music entertainment is worth Alton's livelihood.

Eliminating structural unemployment can be accomplished by preventing any and all technological progress. No worker would ever become unemployed because existing skills do not match required production. Of course, this strategy also prevents the improvement in living standards.

And The Policies

Education and training are THE solution to structural unemployment, but there is a catch. The benefits accrued from education depend directly on the number of productive years a worker has remaining before retirement. The young incur the investment expense of a formal education (college) because they have forty-plus years to recoup this cost. A 58-year old structurally unemployed worker like Alton, does not have as much productive time remaining. Assuming an age of 65 years for retirement, should Alton spend 4 years in college, then he has only 3 years of productive work to recoup this expense. If Alton should decide to extend his formal education, perhaps another 4 or 5 years of graduate, medical, or law school, then Alton should complete his re-education just in time to retire. While this might be good for Alton's self esteem, it provides little help to the economy.