Why unemployment rises while the economy grows

HostIt feels like such a strange gap when you hear the news. One report says the whole country is making more money than ever, but then the next report says more people are out of work. It's like the numbers are telling two different stories about the same world. How can the big picture look so bright when so many individuals are struggling to find a job?

GuestIt's a bit like a baker who used to have five people helping him roll dough by hand. Then he buys a fast new machine that does all the rolling for him. Now he can make twice as many loaves of bread, so his shop is growing and making more money than ever. But he doesn't need those five workers anymore. The shop is doing great, but those five people are out on the street. That's the simplest way to see it. When we say the economy is growing, we usually mean the total value of everything we make and sell went up. But we can make more stuff by using better tools or faster computers instead of hiring more people.

HostBut if that baker is making more money, wouldn't he want to open a second shop and hire people there? That's usually what we're told happens.

GuestSometimes, yeah. But think about what it takes to open that second shop. It takes time and a lot of planning. In the short term, companies often find ways to do more with less. They find a clever new way to ship boxes or a piece of software that handles all their billing. For a while, the company gets much richer, but their need for actual human beings stays flat or even goes down. And there's another side to this too. Growth can be lumpy. It doesn't happen everywhere at once. One part of the economy, like making apps or building houses, might be booming. But at the same time, clothes shops or car parts factories might be closing down. If you look at the total number for the whole country, it looks like growth. But if you're the one working in the car parts factory, you're still out of a job.

HostSo the big number is just an average that hides the pain in the corners.

GuestYeah, exactly. It's a big, messy average. And here is where it gets even trickier. Sometimes the economy grows because we're all working much harder. If ten people do the work that used to take fifteen people, the company is more productive. That shows up as growth in the national data. But those five extra people are now part of the unemployment line. We're getting more out of the people who still have jobs, which makes the economy look healthy on paper, even while the job market is actually shrinking.

HostI see help wanted signs all over the place, though. If the economy is growing and companies are looking for help, why would the number of jobless people keep going up?

GuestWell, this is what people call the mismatch. Imagine a town where a giant steel mill closes down. Suddenly, hundreds of people who know everything about melting metal are out of work. That same week, a massive hospital opens up across town. They need nurses, doctors, and tech experts. The economy in that town might actually be growing because the hospital brings in so much money. But a steelworker can't just walk in and start nursing the next morning. So the growth is there, the jobs are there, but the people who lost their old jobs are stuck. They're unemployed while the town gets richer.

HostThat sounds like a very slow and painful way for things to work. Does the growth eventually catch up to those people?

GuestNot always. And sometimes, the people who are looking for work aren't the same people who just lost jobs. When an economy starts to grow, it can actually pull people off the sidelines. People who had given up on finding work see that things are looking up, so they start searching again. The funny thing is, as soon as they start looking, they're counted as unemployed. Before, they were just invisible to the data. So you can have a situation where a growing economy makes people feel hopeful enough to look for work, which actually pushes the unemployment rate up for a little while.

HostSo it's almost like the more we move forward, the more we leave behind a certain group of workers who just don't fit the new mold.

GuestIt can feel that way. We also have to look at how much it costs to hire someone. If a company is growing but the cost of health care or taxes for a new worker is very high, that company might just pay their current staff to work overtime instead. They grow their output, they grow their profit, but they don't add a single new name to the payroll. They would rather pay a machine or pay a few people extra than take the risk of bringing on someone new.

HostIt feels like we're measuring the health of the machine rather than the health of the people living inside it.

GuestThe most striking thing is that in some of our biggest years of growth, the gap between the people at the top and the people looking for work grew the fastest.

HostThe baker gets his new machine and a bigger house, while the people who used to roll the dough are still standing outside the shop.

GuestThat's the gap.

HostThe news reports about big growth can be true at the same time that the line at the job office gets longer.

GuestA booming shop can still have empty chairs where the workers used to sit.

HostThe big numbers at the top tell us how the engine is running, but they don't always show who's being left behind on the side of the road.