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Does employment affect productivity?

  • Albert van der Horst


  • Hugo Rojas-Romagosa


  • Leon Bettendorf


We investigate the trade-off between employment and labour productivity in a panel of OECD countries in 1970-2003. The endogeneity of employment is shown to matter crucially for assessing its effect on productivity. Estimating a structural model with 3SLS, where employment depends on demographic variables and labour market institutions, we find that employment tends to boost productivity. Literature ignoring the endogeneity of employment, including our own OLS results, incorrectly finds a negative or insignificant effect from employment on productivity. The productivity gain is, however, not a guaranteed by-product of additional employment, as regressions with rolling windows reveal.

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Paper provided by CPB Netherlands Bureau for Economic Policy Analysis in its series CPB Discussion Paper with number 119.

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Date of creation: Feb 2009
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Handle: RePEc:cpb:discus:119
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