Link between GDP growth and employment in India

Link between GDP growth and employment in India

News: A recent report says the relationship between India's GDP growth and the generation of employment for its people has become weaker over time.

What is GDP growth?
• Gross Domestic Product (GDP) growth is a measure of the increase in the total economic output or production of a country over a specific period of time, typically expressed as a percentage

How employment is related to Growth?
• Generally, there is an inverse relationship between GDP growth and unemployment. When the economy is growing at a healthy rate, businesses expand, invest, and hire more workers, leading to a decrease in unemployment. Conversely, during economic downturns or recessions, GDP contracts, businesses cut back, and unemployment tends to rise.
• Lag Effect - The impact of GDP growth on unemployment may not be immediate. It often takes time for businesses to adjust their hiring decisions in response to changes in economic growth. Therefore, changes in GDP growth may precede changes in the unemployment rate.

Factors affecting employment and growth:
• The type of economic growth (extensive or intensive), is an important factor that determines the rate 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.
• 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).
• 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 parttime work, the sectorial composition of employment, etc. are important to be considered.

Conclusion
• GDP growth and unemployment are closely related in the sense that a growing economy typically leads to lower unemployment rates, and a shrinking economy often results in higher unemployment.
• However, various factors such as government policies and global influences, can modify this link. Understanding this relationship is essential for policymakers, businesses, and individuals seeking to make informed economic decisions.