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Question

Employment elasticity represents a convenient way of summarising the employment intensity of growth or sensitivity of employment to output growth. Elaborate.


Solution

Approach:
  • Write definition of Employment elasticity.
  • Write its significance in understanding employment scenarios in an economy or sector.
Employment elasticity is a measure of the percentage change in employment associated with a 1 % point change in economic growth.The employment elasticity indicates the ability of an economy to generate employment opportunities for its population as per cent of its growth (development) process.An employment elasticity of 1 denotes that employment grows at the same rate as economic growth. Elasticity of 0 denotes that employment does not grow at all, regardless of economic growth. Negative employment elasticity denotes that employment shrinks as the economy grows.This is crucial as it is commonly believed that economic growth alone will increase employment.

Employment elasticity measurement generally faces two sets of criticisms:
  1. The relationship between employment and output need not be unidirectional and
  2. The notion of employment elasticity is valid for a given state of technology, wage rate and policies.
The negative employment elasticity in agriculture indicates movement of people out of agriculture to other sectors where wage rates are higher. This migration of surplus workers to other sectors for productive and gainful employment is necessary for inclusive growth. However, the negative employment elasticity in manufacturing sector was a cause of concern particularly when the sector has shown positive growth in output.

Employment elasticity represents a convenient way of summarising the employment intensity of growth or sensitivity of employment to output growth. It is also commonly used to track sectoral potential for generating employment and in forecasting future growth in employment.

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