For the purpose of profiling, GDP per capita is expressed as:
The equation is not suggestive of any causal relationships but is used to link changes in per capita value added to changes in each of the three components, that is: 1) changes in productivity or output per worker, 2) changes in the employment rate, and 3) demographic changes resulting in different age dependency relations in the population.
The amount of growth that can be associated with changes in output per worker, for example, is obtained by calculating the resulting growth in per capita value added under the hypothetical scenario where the other two components (the employment rate and the share of working age population) are held constant, but output per worker changes as actually observed. The difference between the resulting hypothetical growth and the observed growth is the change in value added linked to changes in output per worker. A similar procedure is followed to determine the amount of growth associated with the other two components.
Using data for the period 2009-2010, the above equation suggests that 83% of the increase in real GDP per capita can be linked to changes in the employment rate. This implies that if there had not been any changes in productivity or the structure of the population but the employment rate had changed as observed, real GDP per capita would have increased by 9% (or 83% of 11%).
Finally, a 13% drop in real GDP per capita is associated with the fall in productivity that occurred in the period 2009-2010. This implies that in the absence of changes in the structure of the population and employment, decreasing productivity would be linked to a 1% contraction in real GDP per capita (or 13% of 11%). Conversely, if productivity had been unchanged but employment and the structure of the population had changed as actually observed, real GDP per capita would have grown by 12% instead of the 11% observed.
The graph below shows the path of real value added per capita in the period 2009-2010 under the three hypothetical scenarios:
The resulting paths reveal the greater association of growth with changes in employment, as well as the lower value added per capita linked to deteriorated productivity during the period.
1Labor statistics in this supplement come from PCBS’s Labor Force Surveys (several issues). Population data used in the calculations are from PCBS’s “Palestinians at the end of year 2010”, and GDP data are from PCBS’s “Preliminary Estimates of Quarterly National Accounts (Fourth Quarter 2010)”. It should be noted that the GDP data for 2010 are preliminary estimates based on the available short-term indicators, and the findings in this supplement could be affected as the GDP data are revised.