Employment, productivity and models of growth in the EU

Purpose - The purpose of this paper is to identify the main “models of growth” characterising the EU countries in the last two decades, with particular reference to the employment‐productivity relationship, and to reveal the key determinants of productivity. Design/methodology/approach - After a survey of the relevant literature, the empirical section analyses the “models of growth” by graphical inspection, identifying four models (for EU‐27 in the 1990‐2008 period): extensive, intensive, virtuous, and stagnant. Then different econometric investigations (beta convergence, dynamic panel with GMM estimation, fixed effects panel, cross‐section) are used to test the “diminishing returns of employment rate” hypothesis (for the 2000‐2006 period), to assess the convergence processes and to determine the key variables affecting productivity. Findings - The main finding is the confirmation of the hypothesis mentioned: high employment growth is likely to lead to slower productivity growth. Moreover, besides verifying the beta convergence of productivity per worker, the most significant determinants of productivity are the following: education, a transition index, some structural indicators, and a “shadow economy” proxy. Finally, the descriptive analysis shows that “old” EU countries, coming from two decades of “jobless growth”, shifted to an “extensive” growth model; in contrast, transition countries (NMS) followed the opposite path: reducing employment and raising productivity. Research limitations/implications - It would be advisable to extend the period of the analysis, as soon as new data become available. Practical implications - The main policy implication is to get the EU Lisbon strategy – i.e. to create “more and better” jobs – working effectively. Originality/value - The most original finding is the clear assessment of an employment‐productivity trade‐off. Also, the different models of growth are categorised simply and effectively.