Macroeconomics
Spring semester 2023
Lecture 6
Prof Dr José Iparraguirre
Office 416
Remember this chart?
It shows a situation in which
despite not all resources are
in full use, the economy
activity cannot grow any
further.
Under these circumstances,
an increase in AD will lead
to inflation and not to
higher levels of activity
We also asked in a previous lecture why an economy cannot grow beyond a
given current level of economic activity if there are un-utilized resources
We’ll try to respond to this question in this lecture!
https://ourworldindata.org/grapher/gdp-per-capita-worldbank?time=2020
2020 GDP per capita - top 20
120,000.00
100,000.00
80,000.00
60,000.00
40,000.00
20,000.00
0.00
2020 GDP per capita - bottom 20
2,500.00
2,000.00
1,500.00
1,000.00
500.00
0.00
Changes in GDP per capita and in the Labour Force
Selected 127 countries, 1990-2020
4.5
4.0
3.5
3.0
2.5
D GDPpc
2.0
1.5
1.0
y = -0.1918x + 0.8486
0.5
0.0
-0.5
-1.0
-1.0 0.0 1.0 2.0 3.0 4.0 5.0 6.0
D LF
Economic Productivity Work Employment Labour Demographic
activity effort participation dividend
Changes over time:
𝐺𝑉𝐴 𝐺𝑉𝐴 𝐻𝑠𝑊𝑜𝑟𝑘𝑒𝑑 𝐸𝑚𝑝𝑙𝑜𝑦𝑚𝑒𝑛𝑡 𝐿𝑎𝑏𝐹𝑜𝑟𝑐𝑒 𝑃𝑜𝑝𝑊𝐴
𝑑( 𝑃𝑜𝑝 ) 𝑑(𝐻𝑠𝑊𝑜𝑟𝑘𝑒𝑑) 𝑑(𝐸𝑚𝑝𝑙𝑜𝑦𝑚𝑒𝑛𝑡) 𝑑( 𝐿𝑎𝑏𝐹𝑜𝑟𝑐𝑒 ) 𝑑( 𝑃𝑜𝑝𝑊𝐴 ) 𝑑( 𝑃𝑜𝑝 )
= + + + +
𝑑𝑡 𝑑𝑡 𝑑𝑡 𝑑𝑡 𝑑𝑡 𝑑𝑡
Economic Productivity Growth in Employment Labour Demographic
growth growth work effort growth participation change
growth
Economic Productivity Work Employment Labour Demographic
activity effort participation dividend
GVA/POP GVA/HS worked Hours worked/Employment
0.013 1,400 29.5
1,200 29.0
0.012
28.5
1,000
0.012 28.0
800 27.5
0.011
600 27.0
0.011 26.5
400
26.0
0.010 200 25.5
0.010 0 25.0
2013 2014 2015 2016 2017 2018 2019 2020 2013 2014 2015 2016 2017 2018 2019 2020 2013 2014 2015 2016 2017 2018 2019 2020
Employment/LF LF/WAP WAP/POP
1.40 0.54 0.625
1.38 0.52 0.624
1.36 0.50 0.623
1.34 0.48 0.622
1.32 0.46 0.621
1.30 0.44 0.620
1.28 0.42 0.619
1.26 0.40 0.618
2013 2014 2015 2016 2017 2018 2019 2020 2013 2014 2015 2016 2017 2018 2019 2020 2013 2014 2015 2016 2017 2018 2019 2020
𝐺𝑉𝐴 𝐺𝑉𝐴 𝐻𝑠𝑊𝑜𝑟𝑘𝑒𝑑 𝐸𝑚𝑝𝑙𝑜𝑦𝑚𝑒𝑛𝑡 𝐿𝑎𝑏𝐹𝑜𝑟𝑐𝑒 𝑃𝑜𝑝𝑊𝐴
𝑑( ) 𝑑(𝐻𝑠𝑊𝑜𝑟𝑘𝑒𝑑) 𝑑(𝐸𝑚𝑝𝑙𝑜𝑦𝑚𝑒𝑛𝑡) 𝑑( 𝐿𝑎𝑏𝐹𝑜𝑟𝑐𝑒 ) 𝑑( ) 𝑑( )
𝑃𝑜𝑝 𝑃𝑜𝑝𝑊𝐴 𝑃𝑜𝑝
= + + + +
𝑑𝑡 𝑑𝑡 𝑑𝑡 𝑑𝑡 𝑑𝑡 𝑑𝑡
Economic Productivity Growth in Employment Labour Demographic
growth growth work effort growth participation change
growth
GVA/POP GVA/HS worked Hours worked/Employment
0.002 0.16 1.50
0.000 0.14 1.00
-0.002 0.12 0.50
0.10 0.00
-0.004
0.08 -0.50
-0.006
0.06 -1.00
-0.008 0.04 -1.50
-0.010 0.02 -2.00
-0.012 0.00 -2.50
-0.014 -0.02 -3.00
2014 2015 2016 2017 2018 2019 2020 2014 2015 2016 2017 2018 2019 2020 2014 2015 2016 2017 2018 2019 2020
Employment/LF LF/WAP WAP/POP
0.030 0.000 0.0010
0.025 -0.002
-0.004 0.0005
0.020
-0.006 0.0000
0.015 -0.008
0.010 -0.010 -0.0005
0.005 -0.012
-0.014 -0.0010
0.000
-0.016 -0.0015
-0.005 -0.018
-0.010 -0.020 -0.0020
2014 2015 2016 2017 2018 2019 2020 2014 2015 2016 2017 2018 2019 2020 2014 2015 2016 2017 2018 2019 2020
− The level of Investment effort is influenced by regulatory
barriers, competitive pressures, and skills level of the
workforce.
− The proportion of highly skilled people in the workforce
affects the level of investment, of expenditure on research and
development, of entrepreneurial activity and start-ups.
− Innovation is influenced by the proportion of highly skilled
workers in the workforce and by how much entrepreneurial the
population is.
− The level of research and development activity affects the
level of in-company training.
− In-company training depends upon innovation and
entrepreneurship
− Entrepreneurship influences in-company training activity and
gross expenditure on research and development
− Regulation affects entrepreneurship and investment
− Competition and Regulation
− Start Ups and Total Entrepreneurial Activity
− Skills and Training
− R&D, Start Ups and Total Entrepreneurial Activity
− High wage differentials
between economic sectors
− Service sectors such as health,
education, and scientific
research have the lowest return
in the labor market.
− Average wages vary greatly in
favor of non-tradeable sectors,
such as transport and storage,
building and construction and
financial intermediation and
insurance.
− Average wages also decrease in
Average monetary wage Average working hours
sectors that are most vulnerable
to crises, such as tourism and
wholesale and retail trade
The growth model suggests that economic growth depends on physical capital
accumulation, the rate of technological change, the growth of labour productivity
and the growth of the labour force.
Moreover, physical capital accumulation depends on national saving, and the growth
of the labour force depends on demographic change.
However, studies were not finding a lot of empirical confirmation of this model.
Important variables seemed to be missing.
Source: The Global Competitiveness Report 2019. World Economic Forum
Ranking of Egypt and MENA countries
by pillar of global competitiveness index
Most problematic factors
for doing business in Egypt
Source: World Economic Forum
Source: Transparency International
Overall Rule of Law Score
Source: World Justice Project
Is the increase in GDP a good measure of economic prosperity?
Life satisfaction and GDP per capita
The relationship between
economic growth and
happiness or life satisfaction is
not linear.
After a certain level of
material prosperity, higher
income does not increase how
happy people feel.
Source: World Happiness Report (2022)
GDP growth and Environmental impact
Greater economic
activity is associated
with greater
environmental impact
Sources: Wiedmann et al. (2020). Data from Olivier and Peters (2020) for greenhouse gas (GHG) emissions; UNEP and IRP for material footprint; and World Bank for GDP.
Composite environmental damage and GDP
But as GDP grows,
the intensity
decreases.
Also, there is a wider
spread among rich
countries
Source: Almeida, T.; Cruz, L.; Barata, E. & García-Sánchez, I. (2017). ‘Economic growth and environmental impacts:
An analysis based on a composite index of environmental damage’, Ecological Indicators, Volume 76, pp. 119-130
