<p>GDP per capita can be broken down into 4 smaller components: Labor productivity, Average hours worked, Employment rate and Participation rate as can be deduced from the following formula: </p>

<p><img src="https://i.sstatic.net/5UvIj.png" alt="pic"></p>

<p>What I'd like to ask is if there is a way to accurately measure the change in one component/factor if given the change in other components/factors?</p>

<p>Something akin to this:
Suppose that everyone in the population of Country A is employed and equally productive.  If the population grows by a%, hours of work fall by b%, and output per hour grows by c%, then output per person, or output per capita increases/decreases by how many percent?</p>

<p>For the aforementioned example, I tried to do the following calculation but the result came out wrong.
$$
\Delta \text{GDP per capita}=1-(1+c)\times \frac {1-b}{1+a}
$$ </p>

<p>For a more concrete illustration, let's assign 5,3,4 to a,b,c respectively, I would get 
  $$
\Delta \text{GDP per capita}=1-(1+0.04)\times \frac {1-0.03}{1+0.05}\approx 0.039
$$ 
which means GDP per capita decreases approximately 4 percent but the result I got from the book is a 1% increase. I'm quite stuck here ...</p>

CC BY-SA 3.0
2017-04-30T18:22:44.783Z
Your increases are wrong. You can answer your own question by writing down how much GDP, hours worked, employment and total population grow given your increases. Not all of these is simply one of a%,b%,c%.
Giskard
CC BY-SA 3.0
2017-04-30T22:48:39.107Z
I tried to go with b+c-a but it didn't work either ...
Rei
CC BY-SA 3.0
2017-05-01T07:18:09.110Z
Brute force rarely works. Perhaps try by doing what I suggested in my previous comment. What is the rate of change of GDP? What is the rate of change of hours worked? What is the rate of change of employment? What is the rate of change of total population?
Giskard
CC BY-SA 3.0
2017-05-01T09:20:31.897Z
@denesp I also get a 4% fall. I can't see where the possible mistake is. If GDP per hour grows by c%, and hours fall by b%, then GDP grew by (c-b)%. If population grows by a%, then GDP per capita grows by [(c-b)-a]%. Given the numbers provided, that is 4% fall.
luchonacho
CC BY-SA 3.0
2017-05-01T12:43:01.070Z
@luchonacho Does hours worked fall by b% or does hours worked/employment fall by b%? Simply put: In basic modells population growth should never factor into GDP per capita growth.
Giskard
CC BY-SA 3.0
2017-05-01T13:14:45.147Z
@denesp Hours worked fall by b%. You do not need information on employment. Instead of decomposing GDP in three factors, two suffice.
luchonacho
CC BY-SA 3.0
2017-05-01T13:22:49.957Z
@luchonacho I think one of the pieces of information we are given is incorrectly phrased. Perhaps I am wrong. If hours worked/employment fell by b% there would be no discrepancy.
Giskard
CC BY-SA 3.0
2017-05-01T13:30:29.107Z
@denesp Well, let's see what the OP says. In any case, how would you compute the final solution if b% where hours per employment? Are you assuming employment and population growth together? So that (c-b)%=1%? If not, I'm not sure you can get a final number. We might not be just having an incorrect statement from the OP, but an omitted assumption too.
luchonacho
CC BY-SA 3.0
2017-05-02T11:46:47.127Z
The answer I got from my teacher is that since **"everyone in the population of Country A is employed and equally productive"** the increase in population can be disregarded of and as such, the change in GDP per capita would look like this
delta GDP per capita = 1-(1+c)x(1-b)
With b and c equal to 3 and 4 respectively, it would become
1-(1+0.04)x(1-0.03) =  -0.0088 
which means an approximately 1% increase in GDP per capita
Rei
<macroeconomics><gdp>
Breaking down components of GDP per capita
Rei
# Breaking down components of GDP per capita

(Asked by: username_0 on 2017-04-30)

GDP per capita can be broken down into 4 smaller components: Labor productivity, Average hours worked, Employment rate and Participation rate as can be deduced from the following formula:

![pic](https://i.sstatic.net/5UvIj.png)

What I'd like to ask is if there is a way to accurately measure the change in one component/factor if given the change in other components/factors?

Something akin to this:
Suppose that everyone in the population of Country A is employed and equally productive. If the population grows by a%, hours of work fall by b%, and output per hour grows by c%, then output per person, or output per capita increases/decreases by how many percent?

For the aforementioned example, I tried to do the following calculation but the result came out wrong.
$$
\Delta \text{GDP per capita}=1-(1+c)\times \frac {1-b}{1+a}
$$

For a more concrete illustration, let's assign 5,3,4 to a,b,c respectively, I would get
$$
\Delta \text{GDP per capita}=1-(1+0.04)\times \frac {1-0.03}{1+0.05}\approx 0.039
$$
which means GDP per capita decreases approximately 4 percent but the result I got from the book is a 1% increase. I'm quite stuck here ...

**Tags:** macroeconomics, gdp

> **Comments:**
> **username_1**: Your increases are wrong. You can answer your own question by writing down how much GDP, hours worked, employment and total population grow given your increases. Not all of these is simply one of a%,b%,c%.  
> **username_0**: I tried to go with b+c-a but it didn't work either ...  
> **username_1**: Brute force rarely works. Perhaps try by doing what I suggested in my previous comment. What is the rate of change of GDP? What is the rate of change of hours worked? What is the rate of change of employment? What is the rate of change of total population?  
> **username_2**: @denesp I also get a 4% fall. I can't see where the possible mistake is. If GDP per hour grows by c%, and hours fall by b%, then GDP grew by (c-b)%. If population grows by a%, then GDP per capita grows by [(c-b)-a]%. Given the numbers provided, that is 4% fall.  
> **username_1**: @username_2 Does hours worked fall by b% or does hours worked/employment fall by b%? Simply put: In basic modells population growth should never factor into GDP per capita growth.  
> **username_2**: @denesp Hours worked fall by b%. You do not need information on employment. Instead of decomposing GDP in three factors, two suffice.  
> **username_1**: @username_2 I think one of the pieces of information we are given is incorrectly phrased. Perhaps I am wrong. If hours worked/employment fell by b% there would be no discrepancy.  
> **username_2**: @denesp Well, let's see what the OP says. In any case, how would you compute the final solution if b% where hours per employment? Are you assuming employment and population growth together? So that (c-b)%=1%? If not, I'm not sure you can get a final number. We might not be just having an incorrect statement from the OP, but an omitted assumption too.  
> **username_0**: The answer I got from my teacher is that since **"everyone in the population of Country A is employed and equally productive"** the increase in population can be disregarded of and as such, the change in GDP per capita would look like this delta GDP per capita = 1-(1+c)x(1-b) With b and c equal to 3 and 4 respectively, it would become 1-(1+0.04)x(1-0.03) =  -0.0088  which means an approximately 1% increase in GDP per capita  

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## 0 answers

