Economic complexity and jobs: an empirical analysis

This paper analyses the impact of economic complexity on the labour market using annual data on OECD countries for the period 1985-2008 and averaged data over the period 1990-2010 for 74 developed and developing countries with a large number of controls. We show that moving to higher levels of economic sophistication leads to less unemployment and more employment, showing that economic complexity does not induce job loss. Our findings remain robust across alternative econometric specifications. Furthermore, we place the spotlight on the link between products’ embodied knowledge (sophistication) and labour market outcomes at the micro-level. We build a product-level index that attaches a product to the average level of unemployment (or employment) in the countries that export it. With this index, we illustrate how the development of sophisticated products is associated with changes in the labour market and show that the economic sophistication of an economy captures information about the economy’s job creation and destruction.