Macroeconomic Growth and Labour Market Dynamics: An Empirical Analysis of GDP, Labour Force Participation, and Unemployment

Abstract

This paper has analysed the dynamic associations between GDP growth and the rates of urban unemployment and urban labour participation rate (LFPR) in the urban labour markets of India. The analysis utilised the secondary data of the Indian labour force survey which included Maximum Likelihood estimation under a structural equation modelling approach to demonstrate that the economic growth was associated with low urban unemployment, and unemployment was negatively related to participation in the labour force. These results underscored the role of macroeconomic growth in absorbing labour but high unemployment will deter people to involve themselves in active work, particularly in the more complicated urban environment. The paper combined stringent econometric methods to measure and confirm such interactions putting the findings in the wider context of the labour market issues in India which include skill gaps, informal sector dominance, and the gendered nature of India labour markets. Through critical examination of these essential variables, the study adds value to the study of labour market friction associated with economic development of cities and workforce participation.