Wiener Institut für Internationale Wirtschaftsvergleiche The Vienna Institute for International Economic Studies Employment Structures in the EU New Member States: The Impact of Output, Productivity and Structural Change Robert Stehrer Project Industrial Restructuring and Implications for Labour Markets in the New EU Member States, commissioned by EU DG Employment, Social Affairs and Equal Opportunities, Contract No. VC/2003/0367 EUKLEMS meeting, Helsinki, June 2005

2 EUKLEMS, Helsinki 2005 Topics > The employment problem in a phase of catching-up –The aggregate level –Structural features > The U-shaped pattern of employment dynamics > Employment patterns by occupations and educational attainment levels > A disaggregated forecasting model > Forecast scenarios

3 EUKLEMS, Helsinki 2005 Overall situation in NMS Employment Unemp. Part. GDP growth rates rates rates rates CZ HU SI SK PL EE LT LV BG RO EU

4 EUKLEMS, Helsinki 2005 The employment problem in a phase of catching-up (1) > The aggregate picture

5 EUKLEMS, Helsinki 2005 Employment and GDP growth 1995 = 100 EU-15 EmploymentGDP NMS-10

6 EUKLEMS, Helsinki 2005 Employment trends, = 100 * 2001/2002 new methodology in Romania.

7 EUKLEMS, Helsinki 2005 Employment trends, = 100

8 EUKLEMS, Helsinki 2005 Productivity levels in NMS economic sectors, 2002 relative to EU-15 (gross value added per employed person at PPPs, EU-15 = 100)

9 EUKLEMS, Helsinki 2005 The employment problem in a phase of catching-up (2) > Sectoral patterns

10 EUKLEMS, Helsinki 2005 Output and Employment, Output Employment Industry Agriculture

11 EUKLEMS, Helsinki 2005 Output and Employment, Basic Services (Trade, Restaurants, Hotels, etc.) Financial and Business Services Output Employment

12 EUKLEMS, Helsinki 2005 Growth by sectors, in % p.a. NMS-7 Poland

13 EUKLEMS, Helsinki 2005 Divergence of employment shares from EU-15 structure, 2003 NMS-4NMS-7PL

14 EUKLEMS, Helsinki 2005 Employment growth in sectors, NMS-4NMS-7PL

15 EUKLEMS, Helsinki 2005 Decompositional analysis (1), (Employment change in component/Employment level in 1997)/Number of years Employment Productivity Output Structure CZ HU SI SK PL EE LT LV BG RO EU

16 EUKLEMS, Helsinki 2005 Labour market developments in NMs – Explanatory framework based on structural dynamics Types of structural dynamics: > (i) Productivity dynamics: differentiated by sectors depending upon the scope for productivity catching-up (gap) > (ii) Output dynamics: relative growth/shrinkage of sectors which are under-/over-represented (structural deviation) > (iii)Sectoral and aggregate employment dynamics: result from (i) and (ii) > (iv)Further consequences: adjustments in the demand and supply of skills

17 EUKLEMS, Helsinki 2005 Stylized U-shaped pattern of employment Employment levels Time (1) Overall high productivity growth (2) Strong presence of sectors with declining output shares and strong productivity growth (1) Lower productivity growth (smaller gap) (2)Increasing weight of sectors with strong output growth and lower productivity growth Convergence in output structures (with more advanced economies) and general productivity catching-up

18 EUKLEMS, Helsinki 2005 Employment by occupations and educational attainment levels

19 EUKLEMS, Helsinki 2005 Employment by educational attainment > Sectoral adjustments > Change in occupational structure within sectors > Change in educational structure by occupation & sector > Labour supply adjustment in educational attainment

20 EUKLEMS, Helsinki 2005 Educational structure of total labour force, 15-64, 2003

21 EUKLEMS, Helsinki 2005 Employment by educational categories Hungary: (Index: 1992 = 100) Poland: (Index: 1992 = 100) Czech Republic: (Index: 1993 = 100) Primary education Secondary education Tertiary education Total employment 2003

22 EUKLEMS, Helsinki 2005 Decompositional analysis (2) (Employment change in component/Employment level in 1997)/Number of years

23 EUKLEMS, Helsinki 2005 Comparison to EU-15 > BCHS jobs are overrepresented in sectors (especially Agriculture) > Medium educated are overrepresented in all sectors > Medium educated are overrepresented in occupational categories > supply side plays an important role

24 EUKLEMS, Helsinki 2005 A disaggregated forecasting model of employment in catching-up economies

25 EUKLEMS, Helsinki 2005 Labour demand > Overall GDP growth > Sectoral labour productivity dynamics: –Catching-up towards EU-15 > Structural change: –Convergence in output shares towards EU-15 average –Convergence in occupational structures within sector > Speed of convergence depends on initial gap and estimated parameters

26 EUKLEMS, Helsinki 2005 Speed of convergence (estimated from large country sample ) On average ~23 years to close the productivity gap by half Half-time: ProductivityOutput shares Agriculture 35 years 58 years Manufacturing 23 years 18 years Retail 35 years 30 years Business services 17 years 43 years Public services 20 years 18 years + long-term exogenous trends

27 EUKLEMS, Helsinki 2005 Productivity levels in % of EU-15 by country and sector, 2002 (the further behind, the faster you grow) arithmetic mean EU-15 = 100

28 EUKLEMS, Helsinki 2005 Output shares, 2002 Overrepresentation in Agriculture and Manufacturing Underrepresentation in Services EU-15 mean

29 EUKLEMS, Helsinki 2005 GDP growth rates to keep employment constant

30 EUKLEMS, Helsinki 2005 Employment levels (GDP growth rate: 4 % p.a.) (2002 = 1) Bulgaria, Romania NMS-4 Poland, Estonia Latvia, Lithuania

31 EUKLEMS, Helsinki 2005 The importance of GDP growth ( Employment 2012 in per cent of 2002) Note: variable scenario assuming ex =0.02 and beta=-0.03 (GDP per capita)

32 EUKLEMS, Helsinki 2005 Forecasts of changes in employment levels, and (GDP growth rate: 4% p.a.)

33 EUKLEMS, Helsinki 2005 Dynamics of employment shares, Slovenia Czech Republic Poland Romania EU

34 EUKLEMS, Helsinki 2005 Occupation and Education Change in demand for occupations and educations: > Convergence in occupational structures by sectors to EU-15 mean > Assumption of constant educational attainment structure by occupation and sector (no displacement effect)

35 EUKLEMS, Helsinki 2005 Employment developments by educational categories, (based on 4 % GDP growth per year) Low MediumHigh

36 EUKLEMS, Helsinki 2005 Changes in demand structure by education, 2012, indices 2002 = 1

37 EUKLEMS, Helsinki 2005 The supply side Change in labour supply (Terry Ward and Pawel Gajewski) > Working-age population: -0.5 % p.a. > Supply of low-educated: -1 to -3 % p.a. > Highly educated: +1 to +3 % p.a. > Effects on participation rates?

38 EUKLEMS, Helsinki 2005 Summary points (1) Labour market developments in NMS > Low employment elasticity compared to EU-15 > Strong sectoral reallocation of employment which results from sectoral (output) convergence and differential productivity catching-up dynamics > Overall longer-term pattern: U-shaped aggregate employment path > Effects on skill demands: Strongly negative employment trends of the least qualified Rise in the demand for highly skilled > Supply adjustments in educational attainment – age cohort effects

39 EUKLEMS, Helsinki 2005 Summary points (2): Future developments > Tension between productivity catching-up (potential is still high), sectoral convergence and employment growth > Jobless growth may continue > How to transform high productivity growth rates in even higher output growth rates? > Structural problems: Low educated Regional imbalances Age cohorts