Link between economic growth and employment

This page summarises evidence on the relationship between economic growth and employment.

Empirical studies highlight that economic growth tends to be positively associated with job creation.

  • Khan (2007) finds that employment elasticity of GDP growth in developing countries to be 0.7.
  • At the global level, Kapsos (2005) finds that for every 1-percentage point of additional GDP growth, total employment has grown between 0.3 and 0.38 percentage points during the three periods between 1991 and 2003.

While economic growth is good for job creation, it is important that growth occurs in sectors that have the potential to absorb labour at a large scale. Some sectors and activities are more employment-intensive than others: 

  • A literature review by Basnett and Sen (2013) identifies an extensive body of evidence which suggests that growth in manufacturing and services have a particularly positive impact on employment.The impact of GDP growth on employment in agriculture is found to be limited overall, while value-added growth in the agriculture sector has a relatively large impact on employment. For textiles, the body of evidence was small, but the studies suggest that growth positively contributed to job creation. For agri-business/food processing, the authors find a positive impact of growth on employment.
  • Melamed, Hartwig and Grant (2011) suggest that growth in services is becoming relatively more important in driving employment than manufacturing. The authors looked at research on 24 growth episodes from the 1980s, 1990s and 2000s, in which there was evidence of the impact of employment in different sectors. In 18 of these, poverty had fallen. In 15 of these cases there had been a rise in employment in services, in ten a rise in industrial employment, and in six cases a rise in employment in agriculture (six saw rises in employment in two of the three sectors, but there was no case of increased employment in all three sectors). Similarly, Kapsos (2005)  find that historical global employment elasiticities by economic sector are highest in services (at 0.61 percent).

For more information on the impact of labour productivity on growth, click here.