Structural change

Definition

Structural change refers to significant shifts in the way an economy is organized, particularly regarding the relative importance of different sectors over time. This process often involves a transition from an agriculture-based economy to one focused on industry and services, impacting employment patterns, productivity, and overall economic growth.

5 Must Know Facts For Your Next Test

1. Structural change is often driven by technological advancements that make certain sectors more productive while reducing the labor force needed in others.
2. The Lewis Two-Sector Model illustrates how surplus labor from the agricultural sector can be transferred to the industrial sector, leading to economic development.
3. As economies develop, there tends to be a decline in agricultural employment and a rise in industrial and service sector jobs.
4. Structural change can lead to increased income inequality if benefits of growth are not distributed evenly across different sectors of society.
5. Governments often need to adapt their policies to manage structural change effectively, focusing on education and training to equip workers for new industries.

Review Questions

• How does structural change relate to employment patterns in developing economies?
  • Structural change significantly affects employment patterns by reallocating labor from traditional sectors, like agriculture, to more modern sectors, such as industry and services. In developing economies, this transition can lead to a decline in agricultural jobs while creating new opportunities in manufacturing and service industries. As workers shift between sectors, it often requires adjustments in skills and education to meet the demands of the growing sectors.
• Analyze the role of technological advancements in driving structural change within an economy.
  • Technological advancements are a major driver of structural change as they enhance productivity and efficiency within various sectors. For instance, innovations in farming technology can reduce the need for agricultural labor while boosting output, pushing workers towards industrial jobs. Similarly, automation in manufacturing can transform job requirements and create new opportunities in tech-oriented services. Understanding this interplay helps explain how economies evolve over time.
• Evaluate the implications of structural change on income distribution within an economy.
  • Structural change can lead to significant implications for income distribution as it often benefits certain groups over others. As economies transition from agriculture to industry and services, those with skills aligned with emerging sectors may experience wage increases, while workers in declining sectors may face unemployment or stagnant wages. If the gains from structural change are concentrated among a small segment of the population, it can exacerbate income inequality and create social tensions, requiring policy interventions to address these disparities.

Related terms

Sectoral Shifts: Changes in the distribution of economic activity among different sectors, such as agriculture, manufacturing, and services.

Economic Growth: An increase in the production of goods and services in an economy over time, usually measured by GDP growth.

Labor Market Dynamics: The changes in employment patterns and labor force participation rates that occur due to shifts in economic structure.