Should unemployment caused by the government closing non-essential businesses during quarantine be counted as structrural unemployment?

Question

I have following definition of structural unemployment (taken from "Modern principles of economics" by Tyler Cowen and Alex Tabarrok):

Long-term unemployment caused by shocks or permanent features of economy making it harder for certain workers to find a job

So the answer to the question in the title would seem to be "No, because quarantine won't last so long that prices of wages and other factors of production would fully adjust to inflation. So unemployment wouldn't be long-term, thus it wouldn't be structrual unemployment".

But on the other hand, other three types of unemployment (seasonal, frictional, cyclical) don't seem to fit the bill. An example: Suppose prostituion is legal and I'm a prostitute. Due to pandemic the government decides that prostitution isn't an essential business and because it's not something that can be done online brothels are forced to be closed, including my brothel. My brothel is also a small business with very thin profit margins (consequence of very competitive market caused by low price of entering the market). In short, without its workers working it's unable to pay its rent and is kicked out by its landlord, spelling end to it. I try to find another job, but due to many other businesses closing down competition for very few vacant jobs is crazy and they disappear with speed of light. Is my unemployment seasonal? No, we don't have seasonal nationwide quarantines. Is it cyclical? No, because even if economy was booming nationwide quarantine and ban on non-essential businesses would still leave me and many other people without job. Is it frictional? No, I'm fairly certain that there is no a vacant job that is waiting for me to find it. Structrual unemployment seems to be closest to that I experience by its sprit. So, maybe the definition is too narrow and it's possible for unemployment be both short-run and structrual?

Answer 1

There are lots of different people unemployed, and the answer will be different depending on the person. In your prostitute example, if you left your medical assistant job because prostitution paid more, then it's frictional, because there are lots of medical assistant jobs, but it might take you time to go through the interview process and be onboarded. If you have no marketable skills other than sex work, then it's structural unemployment. If there is another job that you're qualified, but you don't get the job because there are so many other people competing for it, then it's cyclical (which is a bit of a misleading term, since there it's not like there's a "quarantine/no quarantine" cycle, at least not yet, fingers crossed).

Answer 2

The issue is how we can decompose changes in unemployment into frictional, structural, cyclical, and seasonal.

The question has been updated to include the source for the definition of “structural” unemployment. However, I do not have access to that text. There is nothing in the definition that allows us to calculate “structural unemployment” (nor the other components).

Nevertheless, we can step back and attempt to answer this question based on conventional definitions.

“Seasonal” is very easy to deal with: the raw data is non-adjusted, and then statistical agencies do a statistical adjustment. We can work with the seasonally adjusted data, and throw out the notion of seasonality.

We are then facing “structural” and “frictional” unemployment. I assume that researchers have proposed methodologies, which are likely to be controversial. In any event, we estimate those, and remove them from the total. Since “cyclical” is the only remaining category, “cyclical” gets all the remaining unemployment.

I am not expert in labour market economics, but have read recent literature. I have seen no recent use of the concept of “structural unemployment.” My opinion is that it is not meaningful. However, I will attempt to discuss the definitions that I seem to recall seeing.

Frictional unemployment is more straightforward: workers cannot instantly be matched to new jobs, so a certain percentage of the workforce will always be in transit between jobs. Studies exist that attempt to estimate this, but I believe the consensus is that this is a small and steady percentage. It will not move much in a crisis.

Structural unemployment is highly problematic. It is supposed to be a steady state value. One typical way to estimate “structural” variables is to pass them through a smoothing filter. Under this definition, the smoothed series is “structural”, and the residual is “cyclical.” Under this definition, the construction ensures that almost any spike is “cyclical.” However, I have never seen anyone proposing a decomposition like this in at least a decade.

Until the methodology for estimation of “structural” and “frictional” changes in response to the pandemic, any rapid movement in seasonally-adjusted employment is “cyclical” by definition.