The Role of Labor-Market Changes in the Slowdown of European Productivity
AbstractThis paper is about the role of policy, institutions, and culture in creating a strong negative tradeoff between productivity and employment growth across groups of countries within Europe. Throughout the postwar era until 1995 labor productivity grew faster in Europe than in the United States. In the decade after 1995, productivity growth in the EU-15 slowed while that in the US accelerated. Europe’s productivity growth slowdown was largely offset by faster growth than the US in employment per capita, leaving little difference in growth of output per capita between the EU and US going back to 1980. We document the productivity-employment tradeoff in the raw data, in regressions that control for the two-way causation between productivity and employment growth, and we show that there is a robust negative correlation between productivity and employment growth across countries and time. We find that the negative effect of changes in employment per capita on changes in productivity is robust to alternative instruments and to the inclusion or exclusion of particular countries like Italy or Spain. We conclude by suggesting that evaluations of alternative policy reforms in Europe should take into account any offsetting effects on employment and productivity by examining the ultimate impact on changes in income per capita.
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Bibliographic InfoArticle provided by Università di Perugia in its journal Review of Economics and Institutions.
Volume (Year): 3 (2012)
Issue (Month): 2 ()
productivity; employment; productivity-employment tradeoff; european stagnation; mediterranean economies; labor market flexibility; european policy reforms; participation of women;
Find related papers by JEL classification:
- E0 - Macroeconomics and Monetary Economics - - General
- E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
- E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
- E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
- J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General
- J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
- J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
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