Linkages Between Economic Growth and Employment Growth
The relationship between economic growth and employment growth is complex and requires careful consideration for effective policy making. While economic growth can sometimes lead to increased employment, the adoption of capital-intensive technologies can disrupt this relationship.
Impact of Technology on Employment and Output
- 1. Capital-Intensive Technology:
- 1.1. Can increase output without a corresponding rise in employment.
- 1.2. Can lead to redundancy in labor without additional output gains.
- 2. Factor Input Increase:
- 2.1. Typically expected to raise output.
- 2.2. However, may not lead to increased demand if wages are low.
Demand Dynamics and Economic Growth
- 1. Enhanced employment can increase effective demand, potentially boosting output.
- 2. Meagre wages and reduced employment can decelerate demand and economic growth.
- 3. Advanced productivity methods may not be sustainable due to limited demand growth.
Model Findings and Economic Implications
- 1. Vector auto-regression model shows:
- 1.1. Long-term horizon required for stability in employment and output growth post price shocks.
- 1.2. Employment shocks impact price variance significantly, while price changes don't majorly affect employment growth.
- 2. Employment growth is a major driver of output variance, highlighting the importance of demand on economic growth.
Policy Recommendations
- 1. Employment and wage augmentation strategies are necessary for sustainable economic growth.
- 2. Reliance solely on price incentives is insufficient; non-price factors should be considered.
- 3. Addressing production bottlenecks is essential for balancing demand and supply.
Challenges of Productivity Growth
- 1. Productivity growth can concentrate income in the hands of a few, increasing inequality.
- 2. May lead to a decline in aggregate demand, making growth unsustainable.
- 3. Could cause resource-use distortions, impacting balance of payments and overall economic stability.
In conclusion, the intricate interplay between technology, employment, and economic growth demands a comprehensive policy approach that emphasizes demand enhancement through employment and wage growth for sustainable economic development.
