If average labour productivity decreases, real GDP per person:

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Question restatement: If average labour productivity decreases, real GDP per person:

Option provided: may increase or decrease, depending on the change in the share of population employed

Analysis of the option:
- The core idea is that real GDP per person (i.e., GDP per capita) depends on two linked factors: average labour productivity (output per worker) and the size of the workforce relative to the total population (the employment share).
- If average labour productivity falls, the output produced by each worker is lower. If the number of people employed (the employment share) increases by a sufficient amount, total GDP could still rise even though each worker is less productive. Conversely, if the employment share falls or does not rise enough to offset the productivity drop, GDP per capita would fall.
- This option captures the intuitive trade-off: real GDP per person is not determined by productivity alone; it also depends on how many people are working. Therefore, without knowing how the employment share changes, you cannot say definitively whether GDP per person will rise or fall.
- A potential misconception addressed here is the idea that a decline in productivity must always depress real GDP per person. The caveat about the employment share shows why outcomes can go either way depending on micromovements in employment.
- If we were to consider edge cases: (a) productivity decreases but employment share increases substantially, GDP per capita could rise; (b) productivity decreases with a shrinking employment share, GDP per capita would likely fall; (c) if both change in ways that offset each other, the outcome could be neutral.
- Since the question provides only the described option and asks for the true statement under a decrease in productivity, this option correctly emphasizes that the effect on real GDP per person depends on how the employment share changes, rather than implying a definite outcome.
- In summary, the reasoning aligns with the idea that real GDP per person is a function of both productivity and the proportion of the population that is employed, and thus its direction is conditional on changes in employment share as productivity changes.

ECON1002 Introductory Macroeconomics

If average labour productivity decreases, real GDP per person:

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