Article: Impact of economic growth on employment

Recruitment

Impact of economic growth on employment

The relationship between economic growth and employment is one of the most debated issues in national strategies. Economic growth should result from a suitable combination of employment growth and productivity growth.
Impact of economic growth on employment

Recently, most countries have persistent Job shortage and Unemployment problem. And apparently, since the employment does not increase while the economy grows, this phenomenon called as ‘Jobless Growth’. Due to chronic high unemployment in most countries, it has become as important and imminent question in Economics, how Employment growth is affected by Economic growth. Growth is not a means to an end: it is designed to serve people, promote development and reduce poverty.

Creating jobs and incomes is crucial for development. Most developing countries struggle with high unemployment or underemployment. Many people can barely live from what they earn. This is why creating new jobs, but also improving incomes and working conditions for existing jobs, is hugely important. Pro-development integration into global trade as well as foreign direct investment can facilitate this process.

Innovations and technologies contribute to economic growth and employment, but also to overcoming other key problems of development. This also includes technologies for improving environmental protection. In recent years, the significance of employment has rightly been reflected more closely in the focus of development policy debates. The world faces the “urgent challenge” of creating 600 million productive jobs over the next decade in order to generate sustainable growth and maintain social cohesion, according to the annual report on global employment by the International Labour Organization (ILO).

The Global Employment Trends Report also said the world faces the additional challenge of creating decent jobs for the estimated 900 million workers living with their families below the poverty line, mostly in developing countries. Secure jobs with social benefits and fair pay offer a way out of poverty, which explains why employment is a key pillar of development. Another important thing is improved infrastructure and a more effective financial systems and education institutions which facilitates the establishment and growth of companies that create jobs. The income generated as a result boosts the economy and employment.

The type of economic growth (extensive or intensive), is an important factor that determines the rhythm of job creation in relation to economic growth. Thus, the economic growth (GDP growth -aggregate production) as reaction to the aggregate demand growth, can be achieved in different ways: either the quantity of inputs (labour force, capital, etc) increases and then the extensive growth, or the productivity of production factors increases (intensive growth), or a combination of the two possibilities.

On the other hand, the size and evolution of the effect that the economic growth process has on employment differs according to other factors such as rhythm of introducing technical progress, institutional changes specific to the labour market, wage policies, etc.

In fact, most countries in general and developed economies in particular, have had very low employment growth in recent years. According to ILO data (2008 ), most of them saw an increase of less than one per cent per annum in their employment during the 1990s. It was 0.45 per cent in United States, 0.18 per cent in United Kingdom, 0.32 per cent in France, 0.41 per cent in Germany and 0.15 per cent in Japan. In the case of developing economies strictly comparable data are not available, but broad assessment places their average employment growth at around 1.5 per cent per annum during that period .

During the past decade, 20012010, employment is estimated to have grown globally at about 1.5 per cent per annum: the developed countries registering a growth rate of barely 1% during 200108, which also seems to have been more than negated by a large decline during the next two years. The developing countries in East and South East Asia, and transition economies of Eastern Europe also saw very little growth in employment. But Latin America and Africa performed better. South Asia maintained a steady growth of employment of 2.4 per cent in which India had a major contribution (ILO, KILM, 2011).  

The countries in which economic growth was accompanied by an increase in productivity as well as in employment growth differentiate themselves by their contribution to the economic growth process. Thus, in countries like Malta, Luxemburg, Cyprus, Spain employment growth was superior to the labour productivity growth, and economic growth was much more labour-intensive, with employment growth contributing by 75% to the output growth.  

Unlike these countries, Slovakia, Slovenia, Czech R., Poland, Bulgaria, Austria and Denmark, productivity growth was the one that contributed by over 75% to economic growth. The existence of a positive or negative, higher or lower employment elasticity of economic growth, can be explained by the type of economic growth (extensive or intensive), but also as a result of the influence of some factors such as the institutions specific to the labour market, relative cost of labour, the micro and macroeconomic context, technological progress, working time including part-time work, the sectorial composition of employment, etc. 

Over the years in India, the contribution of employment has declined and that of productivity increased in the growth of GDP, so that during the last decade 80% of growth was accounted for by productivity increase and only 20% by employment growth . Long term employment growth in India has been about 2 per cent per annum but has declined to about 1.5 per cent during the last decade, when GDP growth has accelerated to around 7.5%. Services, which have been the major source of recent growth have particularly seen a sharp decline. The economies of developing and emerging markets have grown faster than industrialised countries in recent decades.

This has been facilitated by deeper integration into global trade and a sharp rise in foreign direct investment. Trade and direct investment between developing and emerging markets themselves have also risen sharply in recent years. Generally, recent studies show that between economic growth and employment there is a positive and strong relationship, meaning that economic growth generates new jobs, but of different intensity from one period to another and from one country to another. This reflects the different response of the labour market to the economic growth process.

The relationship between economic growth and employment is one of the most debated issues in national strategies. Emphasis has to be on ‘productive’ and ‘remunerative’ employment: the new employment that is generated has to be at increasing levels of productivity in order that it does not assume poverty perpetuating or povertygenerating nature. In other words, economic growth should result from a suitable combination of employment growth and productivity growth.

It implies that employment oriented growth in a country like India would have, of necessity, to be at a high rate. Also, economic growth alone is not sufficient to bring about a sustainable increase in all our well-being. Social peace, self-determined living as well as a clean and healthy environment are crucial factors of development alongside material prosperity, and they can be endangered by unrestrained economic growth. This is why growth from a development perspective means qualitative growth.

Topics: Recruitment

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