What is unemployment growth?

The outlook for the unemployment growth economy affects everyone. The economy has grown but the number of jobs has not increased along with it. Investors, employees and the industry are all facing the challenge of adapting to the new economic order. When growth is combined with high unemployment, it means that the economy is undergoing structural changes. This structural shift provides opportunities for some people, while others face difficult choices.

What is unemployment growth?

As the population of a country grows, people need to work to support their families. To hire all people seeking work, the economy must be expanded. Without sufficient economic growth, people who are looking for a job cannot find a job. Under any economic conditions, the first to find a job is an individual worker with employable skills. If job opportunities are abundant, those with less attractive skill sets will have more opportunities.

In an economy without employment growth, even if the economy grows, the unemployment rate remains high. This often happens when a relatively large number of people lose their jobs, and the subsequent recovery is not enough to absorb the unemployed, underemployed, and those who initially entered the labor market.

Employment and growth

The economy will experience cyclical and structural changes as it recovers from a recession. In a cyclical economy, employment growth and decline are accompanied by economic expansion and contraction. However, structural changes have replaced many unemployed workers because their companies cannot fully recover.

Employment cycle

In a cyclical economy, as companies lay off workers to align costs with revenues, the country’s GDP will shrink. The unemployment rate has risen, leading to economic contraction. At some point, the economy stabilized and began to expand again. When it happens, the company will re-employ laid-off workers. This re-employment process reduces the unemployment rate. In this case, the skills and training of the workers meet the needs of the company. This rebound of activity in mature industries can help laid-off workers re-employment in their fields or increase their chances of finding similar jobs in different companies.

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In the cyclical recovery, the core industries of the economy are still vigorous or even strong, so they can recover quickly without major changes in basic operations. As a result, employment rebounded, although it lags behind the overall economic recovery. Ultimately, economic growth drives the unemployment rate down.

Sunset industry

Despite the growth in gross domestic product (GDP), economies with high unemployment rates are experiencing economic structural changes rather than cyclical recovery. Many existing companies cannot fully recover from the recession caused by structural changes. As the demand for their products or services declines, these companies can no longer compete in the market. This may be due to the availability of new goods or services at a lower cost. In other cases, brand new products may replace the company’s niche products or services. Since these companies cannot recover, they will not re-employ previous workers. Since previously available jobs have now disappeared, these workers must find jobs in other industries where their skills are not so valuable.

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Hiji Industry

Emerging industries usually recover faster and grow faster because they often benefit from structural changes in the economy. In the process, they need workers with different skills and training. These workers usually require superior skills, as well as more education and training. In other words, a growing company may hire the least skilled people to support the service function.

The lost kingdom

Think about the beginning of the 20th century, when automobiles replaced horses and carriages. The company that made the carriage has encountered a structural change and no longer uses their products. People who make four-wheeled vehicles are no longer employed and need to acquire new and more complex skills to assemble complex cars, including engines and transmission systems. Workers who started to work in the automotive industry were more skilled than cart manufacturers, which made it difficult for previous wagon workers to start.

The new industry creates new employment opportunities for those who have received the necessary training, education and skills. These companies often take innovation as the forerunner to create new products or services. They also rely on R&D to create products that are difficult to replicate and have higher value.

More cutting

In the structural recovery, many companies have changed the nature of their operations to remain competitive. Some rely on technology to increase productivity, and some companies simply move jobs to lower-cost countries to stay competitive. The unemployed who used to work in these companies once again find it difficult to find a new job.

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Retraining

Employees in shrinking industries must acquire new skills and receive additional training to be employed. It takes time to acquire these new skills, as does the process of adapting to a changing industry. Even if the economy shows signs of stability or even growth, this adjustment period is one of the reasons why the unemployment rate will increase. Increases in technology and productivity have changed the nature of employment and increased the time required to retrain employees.

Structural changes in the economy have caused a large number of workers to be unable to find jobs. A large number of unemployed or underemployed people hinder economic growth because it takes years for these people to acquire the skills needed to be employed at a similar level.

Bottom line

An economy without job growth shows that everyone’s basic work base is changing. Some workers will do well because they have the skills and training required by the developing industry. Others face long-term unemployment or underemployment and will not be able to find work until they acquire new skills.

Investors who recognize the structural changes in the economy will benefit from the combination of their investment portfolio and economic growth opportunities. Finding industries that are growing is as easy as tracking employment by industry. Then, a more detailed study can be conducted on promising companies in the industry.

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