Introduction
The Prime concern, of an economy, state, or government, is sustainable economic growth and maintaining high employment level. Therefore, the government and state institutions, such as a Central bank, devise policies/strategies and take measures to ensure that economy constantly expands at a healthy rate and high employment level is maintained. It is also imperative to recognize that not only these two economic objectives are political, but also they are interconnected. Different theories assert that there is a positive or direct correlation between economic growth and employment. It implies that when an economy expands, employment level increases. It increases general consumption and income level, which facilitates the evolution of the economy in various directions.
Since the adoption, of Keynesian Economic Model (after World War II) various kinds of instruments have been developed to avoid dwindling in both economic growth and employment level. It is because the economic crisis has not just economic ramifications, but also political. For instance, because of the economic crisis, in Greece, political system became unstable. Similarly, because of the Great Recession, European Union, and European countries, political-economic systems have become unstable, and they have brought forth ultra-right political parties. Another example is the United States, where entire political campaign, of both presidential candidates, revolved around economic growth and the reduction of unemployment.
It is also a known fact that not just economic outcomes impact political systems, as they are embedded together, but also the political realities impact economy. For instance, when political stability is high, investors avoid investing in the economy, which slows the economic progress and it increases unemployment. In extreme cases, the flight of capital, from the country, whose political climate is disturbed, is witnessed. Therefore, political system exerts influence on the economic system and vice versa (Islam, 2004).
Review
Most of the theories suggest that with an increase in the economic growth, employment is generated, which implies that to maintain economic growth, state/economy/government only has to ensure sustainable economic growth. However, in capitalist economies, it is easier said than done. It is because of contemporary capitalist economies, which are Keynesian in structure, are large/complex, and the capitalist system is inherently flawed (Carree & Thurik, 2010).
In any capitalist system, boom and recession are imperative, and during these periods, decisions, of political-economic nature must be taken by the government and state institutions. For instance, during the boom, the economy grows at an extraordinary pace, which yields complications of different types, such as market failures. One such example is sub-prime mortgage crisis, which was the result of enormous capital that the financial institution had no idea how and where to invest to ascertain healthy economic growth. Therefore, it becomes imperative for government and state institutions to intervene to maintain healthy Gross Domestic Product growth and employment.
Similarly, during the recession, the government and state institutions intervene and adopt expansionary monetary and fiscal policy, two instruments to regulate the economy and to meet economic objectives, to address the challenge. However, whatever might be the case, the state/economy/government intends to meet its prime economic target of either economic growth or employment.
The relation between economic growth and unemployment is negative; therefore, when one target is achieved, the other met naturally. It is why economists assert that there are two methods of achieving these prime objectives. The first one is to generate employment, so that that general consumption level might increase. For this purpose, the government adopts an expansionary fiscal policy, which intends to increase government expenditure that includes starting mega infrastructure projects and giving tax cuts to companies and individuals. Mega infrastructure projects generate employment at the macro-scale, which then increases general consumption level and prices. It acts as an incentive for companies and industries to invest in the economy and expand Aggregate Supply.
The other method is by using monetary policy to increase investment. An expansionary monetary policy reduces interest rate and increases investment, as both are negatively correlated. Also, because of expansionary monetary policy, which is an expansion of money supply, the general price level increases. It acts as an incentive for industry and companies, which invest in an economy those results in 1) economic growth and 2) high employment. However, few studies suggest that in stagnant capitalist economies, which are highly capital intensive, the increase in economic growth has a positive correlation with unemployment (Marxian Perspective).
It is apparent from the systematic study of the evidence that there is a positive correlation, between economic growth and employment, on the other hand, a negative correlation between economic growth and unemployment. It implies that whenever economic growth increases, it generates employment. However, there are various factors, which influence economic growth and thus employment. These factors are political climate, economic state (recession/boom) and structure of the economy (labor/capital intensive). In an economy, which is labor-intensive, such as China/India, economic expansion would ensure a high rate of employment. However, in an economy, which is capital-intensive, such as US /Britain, the increase in economic growth would have comparatively less impact on employment/unemployment. Some studies suggest that the relationship is negative for stagnant developed economies (Patnaik, 2011).
Conclusion
In the end, it is concluded that the relation, between employment and economic growth, is well established and the evidence regarding the ambiguous relationship between employment and economic growth is very weak or apocryphal. However, we learn that these factors or variables are influenced by different kinds of factors or variables, which include political climate, economic condition/state, and structure of the economy. We also learn, to realize both objectives, only one can be pursued.
References
Carree, M. A., & Thurik, R. A. (2010, September 12). The impact of entrepreneurship on economic growth. Retrieved from http://www.hadjarian.com/esterategic/tarjomeh/2-89-karafariny/1.pdf
Islam, R. (2004). The nexus of economic growth, employment and poverty reduction: an empirical analysis. Recovery and Reconstruction Dept.
Patnaik, P. (2011). Economic Growth and Employment. Economic and Political Weekly, 46(26), 172-176.
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