It is an undeniable fact that there is no single factor that consistently spurs the perfect or ideal amount of growth needed for an economy though many forces contribute to economic advancement and growth. Economic growth is measured by an increase in Gross Domestic Product (GDP), which is defined as the combined value of all goods and services produced within a country within a year.
In many countries economic growth often is driven by consumer spending and business investment. If consumers are buying homes, for example, home builders, contractors, and construction workers will experience economic growth. Businesses also drive the economy when they hire workers, raise wages, and invest in growing their businesses. A company that buys a new manufacturing plant or invests in new technologies would potentially create jobs and spending, which leads to growth in the economy.
Cognizant of this fact, The Ethiopian Herald recently talked to Ermias Denboba, an economist graduated from Semera University, to have professional perspective about steps to be taken towards bringing about economic growth and its association with employment.
He said, “There are many factors which help promote consumer and business spending thereby fostering economic prosperity. Banks, for example, lend money to companies and consumers. As businesses have access to credit, they might finance a new production facility, buy a new fleet of trucks, or start a new product line or service. The spending and business investments, in turn, have positive effects on the companies involved. However, the growth also extends to those doing business with the companies.”
According to Ermias, economic growth often is driven by consumer spending and business investment. Tax cuts and rebates are used to return money to consumers and boost spending. Deregulation relaxes the rules imposed on businesses and has been credited with creating growth. Infrastructure spending is designed to create construction jobs and increase productivity by enabling businesses to operate more efficiently.
As to him, having more cash means companies have the resources to procure capital, improve technology, grow, and expand. All of these actions increase productivity, which in turn grows the economy. Tax cuts and rebates also allow consumers to stimulate the economy themselves by infusing it with more money.
Of the number of means to get the economy boosted, infrastructure spending has contributed a great share. It occurs when a local, state, or federal government spends money to build or repair the physical structures and facilities needed for commerce and society as a whole to thrive. True, it includes roads, bridges, ports, and sewer systems, he added.
Economists who favor infrastructure spending as an economic catalyst argue that having top-notch infrastructure increases productivity by enabling businesses to operate as efficiently as possible. For example, when roads and bridges are abundant and in working order, trucks spend less time sitting in traffic, and they don’t have to take circuitous routes to traverse waterways, he opined.
“The stimulus package needs to be designed to spur economic growth in the economy at the time when business and private investment is waning. Infrastructure spending creates jobs as workers must be hired to complete the green-lighted projects. It is also capable of spawning new economic growth. For example, the construction of a new highway might lead to other investments such as gas stations and retail stores opening to cater to motorists,” Ermias elaborated.
According to Ermias, economic growth has four phases—expansion, peak, contraction, and trough. Expansion is when employment, production, and more see an increase and ultimately reach a peak. After that peak, the economy typically goes through a contraction and reaches a trough.
It is well recognized that said Ermias there is no particular answer to what makes an economy strong as several factors working together contribute to strong economy. Efficiency and resources are among those contributing factors. A very good example in this regard would be an efficient manufacturing strategy that can more quickly turn resources into products that can be shipped and sold.
As to Ermias, two common measures for economic growth are gross domestic product (GDP) and gross national product (GNP). While GDP measures all output produced within a nation, GNP also includes investment income from overseas and removes investment income earned by foreign investors.
Multiple factors working together typically are what impact economic growth, which often is reflected in GDP growth and GNP growth. There are numerous strategies the Ethiopian government might use to try and stimulate economic growth, such as tax breaks or tax rebates, deregulation, and investment in infrastructure, he added.
“The economic empowerment programs in Ethiopia should incorporate women most in need, often by engaging with grass-roots and civil society organizations. Particularly, marginalized groups include rural women, domestic workers, some migrants and low-skilled women. Yes, the major aim needs to create higher incomes, better access to and control over resources, and greater security, including protection from violence and instability,” he underlined.
Economic growth alone does not necessarily translate into more and better jobs, especially for the poor, vulnerable and those at risk of being left behind. Economic growth is a prerequisite for increasing productive employment; it is the combined result of increases in employment and increases in labor productivity. Hence, the rate of economic growth sets the absolute ceiling within which growth in employment and growth in labor productivity can take place.
However, the pattern or nature of growth matters, too. The impact of economic growth on productive employment creation depends not only on the rate of growth, but also on the efficiency by which growth translates into productive jobs. The latter depends on a range of factors, such as the sector composition of growth and the capital/labor intensity of growth within the individual sectors.
There is usually a need to increase the number of jobs and the productivity as well as incomes from employment. A review of economic development from an employment perspective should therefore assess to what extent economic growth has met the need for more jobs and for higher productivity/incomes. Such an assessment needs to be broken down by economic sectors to yield meaningful insights. The extent to which economic growth is associated with and driven by a productive transformation is of major importance to the sustainability of economic development in the medium and long term.
Parameters that measure the ability of an economy to generate sufficient employment opportunities for its population can provide valuable insights into the economy’s overall development performance. These pointers include unemployment rates, employment-to-population ratios, labor force participation rates, and the employment intensity of growth or elasticity of employment with respect to output.
The latter indicator measures how much employment growth is associated with the rate of economic growth. Integrating employment and decent work into economic growth and poverty reduction policies helps maximize the benefits for people and ensure that growth is both sustainable and inclusive, Ermias said.
The act of creating jobs through advanced economic growth has highlighted the transformational role of employment in terms of rising living standards, greater social cohesion and improved productivity. The growth-employment and poverty reduction link has also been the central theme of the Ethiopian government’s transformational move.
He said, “The government of Ethiopia advocates and promotes global policy frameworks and partnerships that aim at generating more quality employment opportunities to achieve the goal of transforming growth into employment.
At national level, the objective is to empower each and every regional state to develop, implement and monitor coordinated and context-specific policies and programs that promote quality job creation through economic diversification and investment strategies, skills development for present and future needs in the labor markets, as well as labor market activation and intermediation that integrate the most vulnerable groups.”
The very formulation of promoting sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all has recognized that economic growth will be inclusive only if it creates jobs and decent work in all aspects as economic growth tends to be positively associated with job creation, he remarked.
Obviously, he wrapped up his idea that some sectors and activities are more employment-intensive than others, and as economic growth is good for job creation, it is important to embark on various sectors that have the potential to absorb labor at a larger scale.
BY MENGESHA AMARE
THE ETHIOPIAN HERALD TUESDAY 25 JULY 2023
