Economic Analysis of Income and Employment in the Indian Economy: Granger Causality Approach

Abstract

This paper investigates the relationship between economic growth and employment in India, focusing on the postreform period. Using a semi-log quadratic model, the study examines trends in GDP and employment, drawing comparisons across various countries and income groups. The Granger causality test and Johansen co-integration technique are employed to analyse the linkages between these variables. The findings reveal that while GDP and employment exhibit positive correlations in some countries, including China, Pakistan, and the USA, the relationship is predominantly negative in India, where GDP growth has not been accompanied by corresponding increases in employment. Specifically, the study finds that a 1% increase in GDP leads to a 0.28% reduction in employment. The results underscore the phenomenon of "jobless growth" in India, where structural shifts towards capital-intensive sectors have led to stagnation in labour absorption. This paper argues that economic growth in India must be redefined to focus not only on output expansion but also on inclusive job creation. The paper concludes with policy recommendations aimed at fostering labourintensive growth, promoting skill development, and addressing regional disparities, to ensure that economic growth translates into equitable employment opportunities for all sectors of society.

Keywords: Economic Growth, Employment, Johansen Co-Integrating Test, Granger Causality Test, Indian Economy, Post-Reform Period