Thank you sir Yuri Yegorov.

This question has at least two different potential interpretations:

Although it is theoretically possible for increased employment in a sector to reduce total output, it seems highly unlikely. The obvious way this (theoretically) might happen is to crowd an excessive amount of labor into a sector. If this happens to the extent that the marginal product (MP) of the last worker added in negative, then output would decrease. Most reasons for intentionally doing this would be curious at best.

A few words of caution should be injected here. My comments are related to MP, which by extension, the question strongly implies. Since the question focuses on a single sector, it is not too much of a stretch to envision homogeneous output measured in physical (or virtual) units. On the other hand, if the measurement of output is in currency (e.g., U.S. dollars), then the marginal revenue product (MRP) probably is more appropriate. This depends not only on the marginal product but the price and its elasticity as well.

The second interpretation (of a reduced growth rate) is much more likely. Diminished growth rates due to declining MP is likely to be the norm as suggested by the law of diminishing marginal returns. This just suggests output continues to increase; however, output increases at a decreasing rate with respect to additional employment in this specific sector.

I hope this helps and encourages others to offer ideas.

Rob

Dear Rob,

Thank you very much for your help. I really appreciate.

Warm Regards,

Atif

@ Rob Catlett

Thank you for your help. I agree with you .

I think that in general employment may influence growth in both ways.

The idea behind is the possible contradiction between private and public interests. You can see my paper about self-organized groups to see why it can happen: Conference Paper Competition of Self-Organized Groups

Thank you sir Yuri Yegorov.

About Rob Catlett comment: " If this happens to the extent that the marginal product (MP) of the last worker added in negative, then output would decrease. Most reasons for intentionally doing this would be curious at best. " Well, at first sight this would be so. But if we take into account (dynamic) uncertainty things change. Imagine that in Italy suddendly opens a huge number of new pizza restaurants while demand remain the same. The same output woul require an increased number of people employed and increased total (across all the firms involved) fixed costs. As a result for pizza sector per capita added value would diminish.

I would suggest that you pay attention to the result –bwhat do you mean by “growth” of a sector?

If you have aggregate output Y of the sector, produced by workforce L, then you may have “growth” as an “absolute change” dY=Y[t]–Y[t-1] with dL=+1 – most likely, the parameter at L in the equation will be positive – usually you will have an extensive scaling-up (more workers produce more output, ceteris paribus). You may also have “relative change” (or rate of change, “growth rate”): rY=Y[t]/Y[t-1]–1 – compared to growth rate of labour – the situation (with the positive parameter) could be similar…

However, if you have output per capita y=Y/L as a dependent variable, the change in this “intensive” measure could be different. For example, if you have also capital inputs per worker k=K/L, you may have a simple distributed lag model, e.g.

y[t] = b0 + b1*L[t] + c0*k[t] + c1*k[t-1] + c2*k[t-2] +…

If you try to „control“ for scale by inserting labour directly, here it is possible to get a negative coefficient (b1

The negative impact on production of employment could be originated by other external factors, like, for example law changes. For example, it could be that a new law set new workers rights (max worked hours) or improved security measures or better care of the environment. Then you would have more employees to fulfill the new requirements. Costs, and prices would rise, demand for a more expensive product sink. In the end, you would have a growth in employement for a decreasing production in a sector (that has new rules).

In addition to some of the above suggestions there is an issue with the nature of the data. This can be a case where detailed data can give a misleading impression. For example, suppose you have weekly (or even daily) data on employment and output and firms at a point in time decide on rapid expansion. They may hire inexperienced workers rapidly, workers who take up the time of experienced workers. The experienced workers become temporarily less productive as a result, while the new workers are not yet useful. In quarterly data you might never notice the temporary fall in output with the rise in employment. Over months the new workers become productive and the older ones go back to producing instead of training, so you see more employment with more output.

Thank you sir Andrea Salanti for you detailed explanation.

Thank you sir Venelin Boshnakov. I appreciate.

Thank you sir David Fischbach. I really appreciate you help.

Thank you sir Neil H Garston for a different view. I appreciate.

Just an addition to Neil Garston's sensible comment: the same effect was observed apropos of the firs waves of introduction of information tecnology within firms. This happened because, in a sense, also the old experienced workers suddendly became somewhat "inexperienced".

Thank you Sir Andrea Salanti for adding more explanation to Neil's answer.