Given that the employment elasticity of the formal sector with respect to GDP is 0.5, if real GDP grows by 4% in a year, what is the expected percentage change in formal sector employment? Show all steps.

Step-by-step solution

1. 1. Take the employment elasticity of formal sector: 0.5.
2. 2. Multiply it by the percentage change in GDP: $0.5\times 4$.
3. 3. Conclude that formal sector employment is expected to increase by 2%.

Concept tested: Employment elasticity calculation

Published 10 October 2026 · How this solution was prepared and checked