Economic Growth Elasticity of Employment in Kenya: Error Correction Model Analysis

Abstract

Economic growth elasticity of employment refers to the change in economic growth that is associated with a 1% change in employment. The focus of this study is to establish how employment creation translates to economic growth in Kenya using data from 1997 to 2019. In addition, the study determines the directional relationship of growth employment and growth using Error Correction model (EC). This model is used to capture both the short-run and long-run relationship among variables. Economic growth and employment are measured using rate of per capita GDP and employment ratio respectively. The key findings of this study suggest that, a percentage change in employment is associated with growth of economy in the short-run and a decline of economic growth in the long-run. During the review period, increase in percentage of those employed did not lead to increase in Gross Domestic Product (GDP) per capita in the end.