The Growing Trend of Jobless Economic Growth

Economic growth has always been the focus of all governments. This is because it was believed that if economic growth is achieved, it will benefit the maximum number of people in the economy.

Economic growth, i.e., GDP growth was closely linked to employment growth. As more people started working, the economic sentiment would become positive, and this would lead to further GDP growth.

However, over the past five years or so, a new phenomenon of jobless growth has become the norm. Developed countries like the United States as well as developing countries like India are facing this situation. In these countries, the GDP numbers are rising as fast as expected. However, a large number of people are still suffering from unemployment. This creates a peculiar situation. The government looks at the GDP numbers and believes that they are achieving their objectives. However, the people on the street are still struggling to find employment!

In this article, we will try and understand some of the factors which cause jobless growth.

Population Explosion

The GDP number is used as a base while calculating economic growth. However, for calculating the unemployment rate, the working age population is used as a base. Hence, if there is a massive discrepancy between the rate of economic growth and the rate of growth in working age population, it is likely to result is mass unemployment.

In simpler words, it means that even if the GDP grows at 10%, there will still be mass unemployment if the working age population grows by 20%! A 10% growth in GDP is likely to result is approximately 10% increase in the number of jobs. Economists call this “elasticity of employment”. In most cases, the elasticity of employment is equal to 1.

Hence, even though the economy did grow, it did not grow fast enough to keep up with the rapid pace at which the working population is growing. Countries like India, where millions of people are added to the workforce every year, are facing unemployment because of population explosion.

Obsolete Industries

During the recession, the industries that are hit the worst are the ones that are going obsolete. This commonly leads to shutdown of many companies. Large-scale unemployment happens in that sector as a result.

It is common for industries to be obsoleted when a new and better technology is invented. Consider the case of the horse carriage industry which became obsolete overnight after automobiles were invented. Also, it is common for newer industries to be more technically efficient. For instance, consider the fact that automobiles were largely built on an automated assembly line. As a result, fewer numbers of workers were required by the automobile industry. Hence, all the workers that were obsoleted by the horse carriage industry could not be absorbed by automobile manufacturers.

Hence, if an economy is growing through structural changes, it is likely that there will be a coexistence of high growth rate and high unemployment rate.

Automation

Robotic process automation and artificial intelligence have become the norm today. The world is moving towards driverless cars and intelligent housing solutions. As a result, the requirement of the workforce has drastically gone down. Mundane jobs which used to provide high employment are frequently being obsoleted by automation.

Consider the fact that Amazon has replaced most mom and pop stores in the United States and also in the world. It would, therefore, be accurate to say that the future of workers looks to be in danger. Technology is developing at such a rapid pace that soon even complicated tasks like surgery will be performed by robots! As a result, moving forward, jobless economy growth is more likely to be the norm than the exception!

Shortage of Skills

The workforce of the nation must have the skills which are required to work on new age jobs. Problems tend to arise if the government has not spent enough money trying to train the workforce to perform the tasks. Many countries are new to the technology-is driven world that we are now in. Hence, they are facing unemployment issues. For instance, accountants were in great demand earlier. However, nowadays, accounting is done via ERP software. Hence, the accounting professional now needs to have ERP related skills. Until the time, people do not develop these skills, there is a likelihood that there will be a disconnect between GDP growth and unemployment rate.

Outsourcing:

Developed nations like the United States are facing the problem of outsourcing. Even if the job is performed within the nation’s boundaries, a lot of times people are invited from overseas to perform these tasks. Consider the case of H1B visa in the United States. Most of the tech-related tasks are done by immigrant workers on H1B visas. High-end tech companies like Microsoft, IBM, and Intel employ about 30% immigrant workers. It is for this reason that even though these companies are growing at a rapid pace, there isn’t much benefit received by the average American worker. As a result, even though the GDP of the nation may be growing at a decent pace, the workers are still facing a challenge when it comes to finding employment.

Since there is a disconnect between high employment and high GDP growth, governments all over the world are facing a tough decision. They need to decide whether the focus needs to be on increasing employment or on increasing the GDP.