Structural change

Structural change

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Structural change of an economy
An economy consists of the economic system of a country or other area; the labor, capital and land resources; and the manufacturing, trade, distribution, and consumption of goods and services of that area...

 refers to a long-term widespread change of the fundamental structure, rather than microscale or short-term output and employment. For example, a subsistence economy
Subsistence economy
A subsistence economy is an economy which refers simply to the gathering or amassment of objects of value; the increase in wealth; or the creation of wealth. Capital can be generally defined as assets invested with the expectation that their value will increase, usually because there is the...

 is transformed into a manufacturing economy, or a regulated mixed economy is liberalized. A current structural change in the world economy is globalization
Globalization refers to the increasingly global relationships of culture, people and economic activity. Most often, it refers to economics: the global distribution of the production of goods and services, through reduction of barriers to international trade such as tariffs, export fees, and import...


Fisher (1939) and Clark (1940) look at patterns in changes in sectoral employment. The logic of their arguments being that patterns of production are functions of the level of income and that resource and production shifts are an integral part of development. The major determinant of these shifts is the income elasticity of demand. Goods or sectors for which there is a high income elasticity of demand will grow in importance as income grows. Countries start with their production dominated by primary production, then secondary activities start to dominate and finally the tertiary sector dominates.

Structural change can be initiated by policy decisions or permanent changes in resources, population or the society. The downfall of communism
Revolutions of 1989
The Revolutions of 1989 were the revolutions which overthrew the communist regimes in various Central and Eastern European countries.The events began in Poland in 1989, and continued in Hungary, East Germany, Bulgaria, Czechoslovakia and...

, for example, is a political change that has had far-reaching implications on the economies dependent on the state-run Soviet economy. Structural change involves obsolescence of skills, vocations, and permanent changes in spending and production resulting in structural unemployment
Structural unemployment
Structural unemployment is a form of unemployment resulting from a mismatch between demand in the labour market and the skills and locations of the workers seeking employment...


Short-term economical challenges can be managed with short-term fiscal
Fiscal policy
In economics and political science, fiscal policy is the use of government expenditure and revenue collection to influence the economy....

 or monetary policy
Monetary policy
Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability. The official goals usually include relatively stable prices and low unemployment...

 decisions, and fluctuations are expected to even out in a few years. Managing structural change requires long-term investments such as education
Education in its broadest, general sense is the means through which the aims and habits of a group of people lives on from one generation to the next. Generally, it occurs through any experience that has a formative effect on the way one thinks, feels, or acts...

, and reforms
Microeconomic reform
The term microeconomic reform refers to policies directed to achieve improvements in economic efficiency, either by eliminating or reducing distortions in individual sectors of the economy or by reforming economy-wide policies such as tax policy and competition policy with an emphasis on economic...

 aimed at increasing labor mobility
Labor mobility
Labor mobility or worker mobility is the geographical and occupational movement of workers. Worker mobility is best gauged by the lack of impediments to such mobility. Impediments to mobility are easily divided into two distinct classes with one being personal and the other being systemic. ...

. The Trade Adjustment Assistance
Trade adjustment assistance
Trade Adjustment Assistance is a program of the United States Department of Labor, , and the U.S. Department of Agriculture.The DOL program, Trade Adjustment Assistance for Workers, provides a variety of reemployment services and benefits to workers who have lost their jobs or suffered a reduction...

is an example of such a program.