Breaking Down Structural Unemployment

One of the most concerning trends that our group has cited numerous times over the past year has been the structural unemployment problem facing the United States. The current disconnect between the skills among the U.S. workforce and the skills in demand by companies today have resulted in prolonged high unemployment rates around the country along with growing income disparities among the population. Furthermore, the degree of structural unemployment varies considerably by region. Recent research has focused on the nature of the structural unemployment problem; however, few attempts have addressed why some states have lower structural unemployment rates than others. We argue that one major factor contributing to the varied rates of employment gains around the country is directly related to the concentration of high-skilled workers within a state’s labor force.

We find that when controlling for a state’s industry composition, increasing the concentration of skilled workers within a state had a significant effect on lowering the unemployment rate for that state. Furthermore, we discovered that the number of four-year institutions of higher education per person in a state is also associated with lower unemployment rates. Our findings suggest that states that are further along in addressing their structural unemployment issues, i.e., those states with greater concentrations of high-skilled workers and higher education institutions, on average, have unemployment rates that are 0.5 percent lower than states with lower concentrations of high-skilled workers.

Click on the pdf link below to view the full report.