Question

Explain the following in brief:

Employment multiplier

Answer 1

The employment multiplier refers to the relationship between the primary employment generated directly by an investment and the total employment created as a result of that investment. It shows how a given investment not only creates direct (primary) jobs but also induces additional (secondary) employment through the spending of incomes earned by those primary employees. In simple terms, the employment multiplier is the ratio of total employment (including both primary and secondary employment) to the primary employment caused by an investment.

Mathematically, if:

N₂ = primary employment (direct jobs from investment),

N = total employment (primary plus secondary jobs),

K = Employment Multiplier,

then, N = KN₂ or K = `N/(N_2)`