If GDP goes up, does that mean there are more employed people?People say there is growth in the economy when GDP rises, but what does that mean? That more people are employed?

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pohnpei397 eNotes educator| Certified Educator

GDP and employment are not necessarily related.  In fact, recently, we have had things called "jobless recoveries" where GDP goes up but employment does not.

The reason this can happen is that GDP is the value of all final goods and services produced in a country in a given period.  If GDP goes up, the value of these things has gone up.  But that can happen without more jobs being created.

For example, imagine an economy that has very little in the way of machines.  If more machines are invented, GDP will go up as things can be produced more quickly.  At the same time, employment may well go down because people will be thrown out of work by the machines.

So -- it's defined as economic growth because the economy is making more things (in dollar value).  But that does not have to mean that employment goes up.

krishna-agrawala | Student

GDP refers to the total value of economic or commercial goods and services produced in an economy. Chances are that when when the total production economic production in an economy goes up significantly the total number of people employed or engaged in commercial activities including in manufacturing, trade, profession, and agriculture is also most likely to go up. However, the increase or decrease in employment usually not in direct proportion to the changes in GDP.

There are several reasons for this mismatch between GDP and employment. First, the production of a particular firm in the economy goes up or down, the firm does not increase or decrease its employee strength in exact proportion to the increase or decrease in its production. Usually there is a lag between changes in production and employment. Many times it is necessary to maintain the same employee strength in spite of reduced output. For example if in a school even if the average number of students in a class reduces by ten percent, the number of teachers required to teach in the class will remain same.

Second, the economic output may depend heavily on factors other than the amount of production efforts put in. For example agricultural production is heavily influenced by the weather condition.

Finally there may be changes in productivity. Same number of people may be able to produce more by improving their working methods or putting in more sincere efforts. One major contributor to increase in manpower productivity is use of technology. Use of automated machines and other technological devices of transportation and communication allows firms and individual to increase their output many fold for the same amount of manpower efforts put in.

bookkeeper11107 | Student

Not necessarily:  growth in the economy is a mix of things, and a decrease in unemployment is usually one.  An increase in GDP or gross domestic product may be less due to hiring, than to increased efficiency of existing businesses,  reflected by an increase in the gross profit margin of those businesses.

Optimization of profit can result from improved processes, cost cutting (including payroll!) or increased revenues/sales. Gross domestic product goes up accordingly.