This seems to threaten a rise in structural unemployment for two reasons. First, those people who were previously employed in the financial services sector (or, relatedly, in construction during the housing boom) may be unwilling or unable to work in the new industries which could replace banking in the future. Second, the decline in risk appetite in banking could reduce the supply of capital to those firms which are seeking to innovate and therefore to expand and create new jobs. Worse, in a Phelpsian world, if the real rate of interest rises because deflation sets in, then
firms will invest less in training their workers with job-specific skills, leading employment to drop further.
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Structural unemployment is a key side effect of a growing, prosperous economy driven by technological advances. Workers find that their skills become technologically obsolete. The jobs workers know how to do no longer exist. Structural unemployment can be reduced through education and training.