GDP doesn’t necessarily mean jobs

Most of us would agree that when the levels of output in an economy start to pick up there is an expectation that employment will also increase and vice-versa. So why on the chart below has economic growth slowed at the same time that employment is starting to increase. According to Mark Doms (Chief Economist, US Department of Commerce) this result is not unusual. The graph below shows that there has been a surprisingly weak correlation between private sector job growth and GDP growth. In late 2009 and early 2010 there was good GDP growth but weak employment growth – 2009 Q4 there was 5% growth but a reduction of over 5,000 jobs. Why is there this weak relationship between jobs and growth? Doms comes up with the following reasons:

1. Quarterly changes is employment and GDP are volatile. Short-term numbers are erratic and most economists will take longer-term figures to remove the volatility.

2. Firms adjust the number of hours worked in addition to changing labour numbers.

3. Productivity growth can change significantly from one quarter to the next. In the current recovery there has been a large increase in the productivity of labour as firms start to cut slack in their production process. This means that they have obviously been able to produce more goods with fewer workers.

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