Employment and Economic Growth: Employment Elasticities in Thailand, Brazil, Chile and Argentina

by PLEIC, M. and BERRY, A., 2009
Research Report. Centre for Poverty Employment and Growth, Human Sciences Research Council

In order to judge how much better a country could do in terms of job creation, it is important to have a benchmark for comparison. The experience of other countries and the recipes for their success are a key input into effective policy design. Case studies of such countries are valuable because they provide evidence of the conditions (including policies) under which the best employment–wage combinations are achieved. Such studies reveal, among other things, that high employment elasticities of 0.5 or more when growth has been in the range 6–7% per year have been reasonably common, indicating that they are frequently attainable under certain circumstances and for periods of a decade or more Case studies also point to a natural tendency for the rate of employment growth and the employment elasticity level to fall over time in successful developing countries due to the falling growth of the working age population and the eventual exhaustion of any initial labour supply surplus. The contribution of rising employment to economic growth is gradually taken over by rising labour productivity, which in turn is important for wages to increase. When employment growth and employment elasticities are high, there are often wide differences across sectors in both variables. In other words, certain sectors can disproportionately drive the employment growth. Appropriate policy needs to be framed with these general patterns in mind.