Wiener Institut für Internationale Wirtschaftsvergleiche The Vienna Institute for International Economic Studies Structural change, productivity and employment in the new EU member states Draft paper for Task No. 1 by Peter Havlik, wiiw

2 Main topics: >Catching-up processes in the NMS (productivity and employment) >Structural changes and patterns of productivity growth (GDP, services and manufacturing) >Productivity catching-up and employment growth: conflicting targets?

3 Labour productivity growth in NMS and EU(15) Index 1995=100 Productivity catching-up in NMS is coupled with declining employment: +34

4 Productivity levels in the NMS and in EU(15) GDP per employed person, EU(15) = 100, year 2003 After EU enlargement, productivity in EU(25) dropped by 7% compared to EU(15)

5 Labour productivity growth in manufacturing industry, NMS and EU(15), index 1995= Labour productivity in NMS‘ manufactruring industry grows even faster, yet employment declines

6 Labour productivity in NMS‘ manufacturing industry, year 2002 Index 1995=100 (+84%) (+60%) (+16%) (+113%)

7 Shares of NMS in EU(25) manufacturing industry, 2002, in %

8 Decomposition of productivity growth (GVA) in selected NMS (in % of total), annual productivity growth during

9 Decomposition of manufacturing productivity growth in selected NMS (in % of total), annual productivity growth during

10 Employment elasticity of GDP growth,

11 Regression estimates of employment elasticity to GDP growth for NMS Employment growth (yEMP) and GDP growth (xGDP), Source | SS df MS Number of obs = F( 1, 70) = 7.46 Model | Prob > F = Residual | R-squared = Adj R-squared = Total | Root MSE = yEMP | Coef. Std. Err. t P>|t| [95% Conf. Interval] xGDP| _cons | Min. estimated GDP growth index (yEMP=1; cut-off rate) needed for EMP growth ((1-cons)/xGDP) = 1.058

12 Regression estimates of employment elasticity to output growth for NMS in manufacturing industry Manufacturing employment (yEMP) and value added growth (xOUT) Source | SS df MS Number of obs = F( 1, 70) = Model | Prob > F = Residual | R-squared = Adj R-squared = Total | Root MSE = yEMP | Coef. Std. Err. t P>|t| [95% Conf. Interval] xOUT | _cons | Min. estimated manufacturing value added growth index (yEMP=1;cut-off rate) needed for EMP growth ((1-cons)/xOUT) = 1.108

13 > Fast restructuring and productivity catching-up in the NMS > Yet NMS‘ productivity levels are still very low (50% of EU-15) > Productivity growth results largely from „within growth“ effect (growth of productivity in each sector) > Rising productivity, declining employment (especially in manufacturing) > Employment elasticities to growth are very low („jobless“ growth) > Employment „cut-off“ GDP growth rate about 6%, in manufacturing at least 10% – this is much more than most growth forecasts > How to reconcile productivity catching-up with employment creation? > Can services create enough new jobs in NMS? Summary (tentative) conclusions and questions