When a structural crisis occurs, the GDP or Gross Domestic Product decreases, the unemployment rate increases, the price level decreases until it reaches deflation and the result of the trade balance is negative.
It is important to mention that the main difference between a cyclical and a structural crisis is the period of time it lasts. Cyclical crises are economic imbalances that occur in short periods of time. On the other hand, in structural crises, the imbalances that occur in the economy are maintained for very long periods of time. In other words, a cyclical crisis is short-term and a structural one is long-term.
Of course, to solve a structural crisis, very deep efforts are needed to reactivate the economy and achieve economic growth, lower the unemployment rate, stabilize prices and improve the trade balance.
What role does time play in a structural crisis?
Obviously, time is a determining element for a crisis to be considered structural. Every crisis begins with an imbalance in the economic system and can later turn into a very serious disturbance.
Above all, when there is a crisis, the most negative effects are the decrease in economic growth that is reflected in the GDP. Likewise, unemployment rates increase considerably and the trade balance behaves in a negative way.
Additionally, the price level falls, to the point that many companies have to sell their products below the cost of production. For that reason, many companies go bankrupt and the financial system is also negatively affected.
Now, when we talk about a structural crisis, the adverse situation the economy is going through becomes very serious. Thus, it not only affects the present situation, but also the conditions in the long-term future of the economy. Recovery can be very slow and difficult. Therefore, time becomes a fundamental aspect that makes the crisis structural.
Why is it structural?
Naturally, it is considered structural because it causes severe and serious repercussions in the economic system, generating processes of depression, the closure of companies and the loss of jobs. In addition, it should be clarified that this type of crisis can have a national or international scope.
For example, we can mention the crisis of 1929 that arose in the United States with the collapse of the New York Stock Exchange. Similarly, the financial crisis of 2008 and the Covid 19 crisis. All these crises have had very profound effects on the different economies of the world and have lasted for a long time.
In addition, it is structural because it involves a set of relationships of different elements that remain altered for long periods. The structures that can affect a crisis of this nature can be:
- Institutional: Like the right to property, the State, or the unions, to name a few examples.
- Physical and geographical: It could be the deterioration of the environment or the climate.
- Demographics: It could be the population density both by age or by occupation.
- Social: Like social classes and the informal economy.
- Techniques: Like the implementation of technology and new production processes.
When a structural crisis occurs, all these structures mentioned in the previous section can change or be modified, causing movements and reactions in economic activity. All this allows us to understand that when the economy suffers a structural crisis, changes can occur in the political, social, legal aspects, or even changes in people’s ideas and way of life.
Undoubtedly, these changes can occur both nationally and internationally. Everything will depend on the dimension that the crisis can reach.
In conclusion, it can be said that any crisis, whether cyclical or structural, produces negative effects, such as the decrease in prices, the bankruptcy and closure of many companies, and high levels of unemployment. All this has an impact on the income level of the population and its level of consumption. However, the problem with the structural crisis is that its effects are very profound and its duration is very long-term.