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)

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. Stock Analysis

    4 Key Indicators That Move The Markets

    Educated investors need to keep their finger on the pulse of the economy, and watching certain indicators is a good way to do that.
  2. Economics

    How The Unemployment Rate Affects Everybody

    Depending on how it's measured, the unemployment rate is open to interpretation. Learn how to find the real rate.
  3. Investing

    How Labor Force Participation Rate Affects U.S. Unemployment

    While a falling unemployment rate sounds like a good thing, it can actually be indicative of people leaving the labor force because they can't find a job.
  4. Investing

    America’s Labor Market: Hidden Distortions and Uncertain Forecasts

    Employment reports released by the Bureau of Labor Statistics have a profound impact on political, business, consumer, and investor behavior.
  5. Personal Finance

    No Paycheck Doesn't Necessarily Mean No Income

    If you lose your job, be sure to apply for unemployment benefits. It's not welfare, but an insurance program that you and your employer have already paid into.
  6. Economics

    Why Jobs Reports No Longer Predict the Fed

    The Bureau of Labor Statistics’ employment report is thought to be one of the most important signals of major change in forthcoming U.S. monetary policy.
  7. Economics

    Is the U.S. Economy Ready for Liftoff?

    The Fed continues to delay normalizing rates, citing inflation concerns and “global economic and financial developments” in explaining its rationale.
  8. Home & Auto

    How Much Money Do You Need to Live in NYC?

    Learn how much money you need to meet basic expenses in New York City as a student, as a professional and as an unemployed job seeker.
  9. Entrepreneurship

    5 Signs You’re About To Be Fired

    Often the signs of an imminent firing are subtle. Keep these five in mind.
  10. Investing

    Did the Fed Miss its Window to Raise Rates?

    The debate in the media over whether the Federal Reserve will announce liftoff this month or in December continues to rage on.
  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

Hot Definitions
  1. Bar Chart

    A style of chart used by some technical analysts, on which, as illustrated below, the top of the vertical line indicates ...
  2. Bullish Engulfing Pattern

    A chart pattern that forms when a small black candlestick is followed by a large white candlestick that completely eclipses ...
  3. Cyber Monday

    An expression used in online retailing to describe the Monday following U.S. Thanksgiving weekend. Cyber Monday is generally ...
  4. Take A Bath

    A slang term referring to the situation of an investor who has experienced a large loss from an investment or speculative ...
Trading Center