The prospect of a jobless growth economy has ramifications for everyone. An economy that is experiencing growth without an expansion of jobs challenges investors, employees and industries to adapt to the new economic order. When growth is coupled with high unemployment, it means that the economy is experiencing structural changes. This structural shift offers opportunities to some and difficult choices for others. (Learn how to find a good measure for unemployment in The Unemployment Rate: Get Real)

What Is a Jobless Growth Economy?
As the population of a country grows, people need work in order to support their families and themselves. Economic growth is necessary to employ all those who seek work. Without sufficient economic growth, people looking for work will be unable to find it. In any economic condition, it is the individual workers possessing employable skills that will find work first. If the supply of jobs is plentiful, then more opportunities open up for those with less attractive skill sets.

In a jobless growth economy, unemployment remains stubbornly high even as the economy grows. This tends to happen when a relatively large number of people have lost their jobs and the ensuing recovery is insufficient to absorb the unemployed, under-employed and new members entering the work force.

Jobs and Economic Growth
Economies experience cyclical as well as structural changes when they recover from a recession. In a cyclical economy, employment growth and decline follows the expansion and contraction of the economy. A structural change, however, displaces many unemployed workers as their companies are unable to recover fully.

Employment Cycles
In cyclical economies, the GDP of the country contracts as companies lay off workers to bring costs in line with revenues. Unemployment climbs, contributing to the economic contraction. At some point, the economy stabilizes and begins to expand again. When it does, companies rehire their laid off workers. This rehiring process reduces the level of unemployment. In this case, the skills and training of the workers fit the needs of the companies. This rebound in activity in established industries helps laid off workers get rehired in their field or increases their chances of finding similar work at a different company.

The core industries of the economy remain strong and viable in a cyclical recovery, so they are able to recover relatively quickly without undergoing significant changes in the basic operation. As a result, employment recovers even though it lags the recovery of the economy. Eventually, the economic growth drives the unemployment level down.

Sunset Industries
Economies that experience high unemployment even as their gross domestic product (GDP) expands are encountering structural changes in their economy rather than a cyclical recovery. Many of the existing companies are unable to recover fully in a recession caused by structural changes. These companies are no longer able to compete in the market place as demand for their products or services falls. This can be due to new goods or services becoming available at a lower cost. In other cases, entirely new products may replace a company's niche product or service. Since these companies are unable to recover, they do not rehire their former workers. Without the jobs that were normally available, these workers must find work in other industries where their skills are not as valuable.

Sunrise Industries
New industries usually recover more quickly and grow faster because they often benefit from a structural shift in the economy. Along the way, they need workers with different skill sets and training. These workers usually require superior skills, along with more education and training. That said, the growing companies may hire people with minimal skills to support a service function.

My Kingdom for a Horse
Consider the dawn of the 20th century when automobiles replaced the horse and buggy. The companies that made buggies encountered the structural shift away from their products. The people who made buggies were no longer employable and needed to acquire new skills that were more sophisticated in order to assemble complicated automobiles with engines and drive trains. Workers who began in the auto industry were more skilled than cart makers, making it hard for former buggy workers to get a start. (Read about the man who brought automobiles to the masses in Henry Ford: Industry Mogul And Industrial Innovator)

New industries create new employment opportunities for those individuals with the necessary training, education and skill sets. These companies tend to lead with innovation, creating new products or services. They also depend on research and development to create hard-to-replicate, higher value products.

More Cuts
In a structural recovery, many companies change the nature of their operations to remain competitive. Some depend on productivity improvements through technology, and some companies simply move jobs to lower cost countries so they can remain competitive. Once again, the unemployed people who formerly held these jobs find it very difficult to find new work. (Read about controversies of outsourcing to low-cost countries in The Globalization Debate)

Retraining
Employees in industries that are shrinking must acquire new skills and undergo additional training to become employable. Acquiring these new skills and the process of adapting to changing industries takes time. This adjustment period is one of the reasons unemployment can increase even though the economy is showing signs of stability or even growth. Technology and productivity improvements change the nature of employment and increase the time it takes to retrain employees.

Structural change in an economy results in a large number of workers who are unable to find work. A large number of unemployed or underemployed people holds the growth of the economy back, as it takes a number of years before these individuals gain the skills they need to be employed at a similar level.(Read Six Steps To Successfully Switching Financial Careers for tips on a smooth career transition)

The Bottom Line
A jobless growth economy indicates changes to the fundamental basis of work for everyone. Some workers will do well, as they have the skills and training that growing industries require. Others face long-term unemployment or underemployment, and will be unable to find work until they obtain new skills.

Investors who recognize the structural changes in the economy will benefit if they align their investment portfolios with the economy's growth opportunities. Finding sectors that are growing can be as simple as following the employment numbers according to industry. Then a more detailed study can be done on the promising companies within that sector.

For related reading, take a look at Industries That Thrive On Recession.

Related Articles
  1. Economics

    Explaining the Participation Rate

    The participation rate is the percentage of civilians who are either employed or unemployed and looking for a job.
  2. Economics

    What Qualifies as Full Employment?

    Full employment is an economic term describing a situation where all available labor resources are being utilized to their highest extent.
  3. Economics

    Understanding Frictional Unemployment

    Frictional unemployment is one aspect of natural unemployment, which is unemployment caused by things other than an underperforming economy.
  4. Economics

    Why U.S. Wage Growth Isn’t as Bad as It Appears

    Though wage growth numbers are more nuanced than they may appear, they reveal another sign that the U.S. recovery is still more solid than many believe.
  5. Economics

    America's Poorest States in 2015

    Learn the reasons Mississippi, New Mexico, Louisiana, Georgia and Kentucky are the poorest states in the United States, as of 2015.
  6. Economics

    Minimum Wages Can Raise Unemployment

    Learn why many economists feel that minimum wages, while intended to benefit low-wage workers, actually hurt them by increasing unemployment.
  7. Economics

    The True Unemployment Rate: U6 Vs. U3

    Learn how to distinguish between the U-3 and U-6 unemployment rates, and explore which rate provides a truer picture of unemployment.
  8. Investing

    Where Are Real Estate Stocks Heading?

    We summarize five economic reports that investors should monitor monthly to keep them informed of where real estate and its related stocks are heading.
  9. Credit & Loans

    The Best and Worst Countries to Find a Job

    Which countries have the lowest and highest unemployment rates? The answers might surprise you.
  10. Economics

    What The Fed Needs To Consider Before A Rate Hike

    Everyone, from colleagues to clients, has some interpretation of when and if the Fed should raise short-term rates and start to normalize monetary policy.
RELATED TERMS
  1. Structural Unemployment

    A longer-lasting form of unemployment caused by fundamental shifts ...
  2. Economic Conditions

    The state of the economy in a country or region. Economic conditions ...
  3. Employment Insurance - EI

    An unemployment insurance program in Canada that allows individuals ...
  4. Jobless Claims

    The number of people who are filing or have filed to receive ...
  5. Mass Production

    The manufacturing of large quantities of standardized products, ...
  6. Capital Decay

    An economic term denoting the amount of revenue that is lost ...
RELATED FAQS
  1. What economic indicators are important to consider when investing in the retail sector?

    The unemployment rate and Consumer Confidence Index (CCI) rank as two of the most important economic indicators to consider ... Read Full Answer >>
  2. Why is the employment figure important to a "dove"

    The employment figure is important to doves, because they are primarily concerned with the health of the labor market. Doves ... Read Full Answer >>
  3. How does the U.S. Bureau of Labor Statistics calculate the unemployment rate published ...

    The unemployment rate is one of the most closely followed indicators, used by businesses, investors and private citizens ... Read Full Answer >>
  4. What are some of the key shortcomings of how the U.S. unemployment rate is determined ...

    Each month, the Bureau of Labor Statistics (BLS), a division of the U.S. Department of Labor, announces the unemployment ... Read Full Answer >>
  5. What austerity measures can a country implement to curtail government spending?

    Broadly speaking, there are three types of austerity measures. The first is focused on revenue generation (higher taxes), ... Read Full Answer >>
  6. What is the key difference between the participation rate and the unemployment rate?

    The participation rate and unemployment rate are economic metrics used to gauge the health of the U.S. job market. The key ... Read Full Answer >>

You May Also Like

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!