At first glance, the above spreadsheet may seem intriguing, but it reveals a startling correlation between jobless rates and economic growth. Though GDP growth is influenced by several factors other than unemployment rates, traditionally, high unemployment coincides with low GDP growth, while low unemployment drives expansion.
Despite these nuances, a perplexing phenomenon has emerged: jobless growth. This occurs when economies achieve high growth rates despite persistently high unemployment, defying conventional expectations. Despite improvements in key economic indicators like GDP, employment rates remain stagnant or even decline. Though presently only a few countries are currently grappling with this challenge, this paradox has left economists and policymakers from across the world perplexed.
The traditional link between GDP and employment is severed, defying the expectation that lower unemployment drives growth through increased demand and supply. The concept of jobless growth raises pressing concerns. As GDP continues to rise amidst high unemployment, the disconnect between the two threatens to exacerbate social and economic instability. If unchecked, this trend can have catastrophic consequences.
Coming back to the above spreadsheet, the light red highlighted cells reveal years where high growth rates coincided with persistently low employment levels. For this study, we have fixed the benchmarks of “high unemployment" at 5% and "high growth" at 5% GDP growth rate. Notably, most advanced economies experienced jobless growth in 2021, meeting these benchmarks. This phenomenon can be attributed to the COVID-19 pandemic's aftermath. In 2020, economic activity slumped, leading to widespread job losses and recession. Conversely, 2021 saw a sharp rebound, driving GDP growth rates higher than the previous year leading to post-recession jobless growth.
To clarify, unemployment rates represent the ratio of unemployed individuals to the total labour force, whereas GDP growth rates signify the percentage change in gross domestic product from the previous year. Importantly, these metrics are distinct, with unemployment figures representing absolute values and GDP growth rates representing comparative values. Despite these distinct yardsticks of measurement this study has tried to analyse the loose connect between unemployment rates and GDP growth rates.
Essentially jobless growth occurs when economic expansion and technological advancements fail to translate into meaningful employment opportunities. This economic growth unemployment paradox raises concerns about the quality of growth, its sustainability, and the implications for social stability. These disconnect between economic growth and employment is often attributed to:
1. Technology and job displacement: Machines and artificial intelligence replace human labour, reducing the need for manual workforce.
2. Globalization: Outsourcing and off-shoring of jobs to countries with lower labour costs.
3. Changes in industry structure: Shifts from labour-intensive to capital-intensive industries.
4. Skills mismatch and labour market trends: Workers skills may not align with emerging industry requirements.
5. Monetary policy: Interest rates and quantitative easing impact investment and hiring decisions.
6. Regulatory frameworks: Labour laws and regulations can hinder job creation
While isolated instances of countries experiencing “jobless growth” need not be worrisome, but continued happening of this phenomenon can have some disastrous consequences like:
1. Income inequality: Widening gap between the rich and the poor, as those with skills and resources benefit from economic growth while others are left behind.
2. Social unrest: Prolonged unemployment can lead to dissatisfaction, protests, and social instability.
3. Human capital erosion: Idle workforce can result in skills degradation and reduced productivity.
4. Reduced consumer spending: Limited disposable income hampers economic growth, as consumption drives a significant portion of GDP.
5. Increased burden on social services: Governments may struggle to provide support for unemployed individuals, straining social safety nets.
Although this study focuses on a selection of the 22 largest economies, but it is likely that many other nations are also confronting the challenge of "jobless growth." As previously noted, this can be a temporary issue, as seen in 2021 when numerous countries faced this problem following the COVID-19 pandemic. However, for some economies, it remains a persistent concern. In China, signs of jobless growth were evident as early as 2019 (or possibly earlier, though those years fall outside the scope of this study), with additional instances in 2021 and 2023. India, on the other hand, has seemingly struggled with this issue consistently since 2021. Nowhere is this phenomenon more pronounced than in India, which continues to record some of the highest GDP growth rates globally. Indonesia appears to be following a similar trajectory.
Both India and Indonesia have strong economic growth prospects, and economists and policymakers remain optimistic about their futures. However, it is vital for planners in these countries to ensure that the benefits of economic development, including meaningful employment opportunities, are extended to the most marginalized sections of society.
While there is no single solution to the problem of jobless growth, governments in affected countries can consider several broad measures, such as:
1. Prioritizing investments in education and training programs.
2. Encouraging businesses to adopt socially responsible practices by investing in workforce development.
3. Aligning educational curricula with emerging technologies and skills development.
4. Updating labour laws and regulations to reflect changing economic realities.
5. Supporting ongoing research to monitor jobless growth and provide data-driven insights for informed policymaking.
Jobless growth poses significant challenges to economic sustainability and social cohesion. Addressing this paradox requires a multifaceted approach, involving policymakers, businesses, educators, and individuals. By understanding the causes and consequences of jobless growth, we can work towards creating a more inclusive and equitable economy that benefits all.
