The Nexus between Employment and Economic Growth: A Cross-Country Analysis

Abstract

The main objective of this paper is to examine the relationship between employment and economic growth in developed and developing countries over the period of 1970–2019. As documented in the literature in the past, economic growth in most developing countries has been less job-generating than in developed countries, even though high economic growth is observed in most of the developing world, indicating jobless growth. Based on the Cobb–Douglas production function, we developed an employment demand model to find the employment elasticity with respect to economic growth using working hours and population as explanatory variables. The main findings of the present study reveal that the employment elasticities with respect to GDP are positive and significant in developing and developed countries. But in the developing countries, the employment elasticity is relatively very low (0.11 to 0.15) compared to the developed countries (0.43 to 0.48), which led to the conclusion that a possibility of jobless growth exists in these countries. The findings of the study imply that policymakers should focus more on employment-led growth policies instead of growth-led employment policies, especially in developing countries.