Structural unemployment—the unemployment that remains even at the peak of the economy’s upswings—is caused by an imbalance between the types and locations of available employment on the one hand and the qualifications and locations of workers on the other hand. When such an imbalance exists, both labor shortages and unemployment may occur, despite a balance between supply and demand for labor in the economy as a whole. Because technological change is likely to displace some workers, it is a major factor in producing structural unemployment. While technological advance almost invariably results in shifts in demands for different types of workers, it does not necessarily result in unemployment. Relatively small or gradual changes in demand are likely to cause little unemployment. In the individual firm or even in the labor market as a whole, normal attrition may be sufficient to reduce the size of the work force in the affected occupations. Relatively large or rapid changes, however, can cause serious problems. Workers may lose their jobs and find themselves without the skills necessary to obtain new jobs. Whether this displacement leads to structural unemployment depends on the amount of public and private sector resources devoted to retraining and placing those workers. Workers can be encouraged to move where there are jobs, to reeducate or retrain themselves, or to retire. In addition, other factors affecting structural unemployment, such as capital movement, can be controlled. Increased structural unemployment, should it occur, makes it difficult for the economy to achieve desired low rates of unemployment along with low rates of inflation. If there is a growing pool of workers who lack the necessary skills for the available jobs, increases in total labor demand will rapidly generate shortages of qualified workers. As the wages of those workers are bid up, labor costs, and thus prices, rise. This phenomenon may be an important factor in the rising trend, observed for the past two decades, of unemployment combined with inflation. Government policy has placed a priority on reducing inflation, but these efforts have nevertheless caused unemployment to increase. 1 RC00144-03 1. All of the following are mentioned as ways of controlling the magnitude of structural unemployment EXCEPT A. using public funds to create jobs B. teaching new skills to displaced workers C. allowing displaced workers to retire D. controlling the movement of capital E. encouraging workers to move to where jobs are available 2 RC00144-04 2. The passage suggests that a potential outcome of higher structural unemployment is A. increased public spending for social services B. placement of workers in jobs for which they are not qualified C. higher wages for those workers who have skills that are in demand D. an increase in the length of time jobs remain unfilled E. a shift in the government’s economic policy priorities 3 RC00144-05 3. It can be inferred from the passage that even when there are unemployed workers, labor shortages are still likely to occur if A. the inflation rate is unusually high B. there is insufficient technological innovation C. the level of structural unemployment is exceptionally low D. the jobs available in certain places require skills that the labor force in those areas lacks E. the workers in some industries are dissatisfied with the pay offered in those industries 4 RC00144-06 4. The passage suggests that the phenomenon of combined unemployment and inflation is A. a socioeconomic problem that can only be addressed by government intervention B. a socioeconomic problem that can be characteristic of periods of structural unemployment C. an economic problem that results from government intervention in management-labor relations D. an economic problem that results from imperfect applications of technology E. an economic problem that can be eliminated by relatively small changes in the labor force 5 RC00144-07 5. The passage is primarily concerned with A. clarifying the definition of a concept B. proposing a way to eliminate an undesirable condition C. discussing the sources and consequences of a problem D. suggesting ways to alleviate the effects of a particular social policy E. evaluating the steps that have been taken to correct an imbalance 6 RC00144-08 6. According to the passage, small downward shifts in the demand for labor will not usually cause unemployment because A. such shifts are frequently accompanied by upswings in the economy B. such shifts usually occur slowly C. workers can be encouraged to move to where there are jobs D. normal attrition is often sufficient to reduce the size of the work force E. workers are usually flexible enough to learn new skills and switch to new jobs OG 2019 ID's RC00144-03, RC00144-04, RC00144-05, RC00144-06, RC00144-07, RC00144-08

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Structural unemploymentthe unemployment that remains even at the peak

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akshitab2912

Hi chetan2u generis KarishmaB GMATNinjaTwo GMATNinja: I am unable to wrap my head around option D for the last question.

My contention with D is that a decrease in demand will not cause unemployment because attrition will reduce the size of the workforce - but if attrition will reduce the size of the workforce - where will the people who had undergone attrition go? Will they resign or will they retire or will they be fired? Because at the end of the day, attrition will reduce the size of the team & hence little unemployment will happen. But the question says that little unemployment will also not happen. Unemployment means the state of being unemployed. That is a state of not working/joblessness. Unemployment can be 1% or 10% - how is that even relevant? Unemployment will happen. So Option C or D according to me should be the answer because people who would have gone attrition would go find job somewhere or pick up some other skill. I am miserable, pls help.

You are overthinking here. We have to answer as per the passage. Note the question -

"According to the passage, small downward shifts in the demand for labor will not usually cause unemployment because"

We are given in the passage:
Relatively small or gradual changes in demand are likely to cause little unemployment. In the individual firm or even in the labor market as a whole, normal attrition may be sufficient to reduce the size of the work force in the affected occupations.

The passage says that normal attrition is enough to reduce the size of the work force in affected occupations. So that is that.
Even if you must wonder what happens to those who quit - they could join a job in another industry where demand is increasing or they could have left the job for nurturing the kids or they may have retired. It doesn't matter. We are given that small downward shifts in demand do not cause unemployment because normal attrition handles this. How exactly it happens is not for us to worry about.

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