1. Wiener Institut für Internationale Wirtschaftsvergleiche The Vienna Institute for International Economic Studies www.wiiw.ac.at 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. 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 2003-2012

3. 3 EUKLEMS, Helsinki 2005 Overall situation in NMS Employment Unemp. Part. GDP growth rates rates rates rates 1996200320032002 1995-2004 2003 2004 CZ69.364.7 7.870.5 2.43.7 3.8 HU 52.157.0 5.959.5 3.43.0 3.9 SI61.662.5 6.768.1 4.12.5 4.2 SK61.957.717.469.5 4.84.5 4.5 PL58.451.219.664.9 4.73.8 5.4 EE64.962.910.068.3 5.05.1 6.2 LT60.361.112.469.9 4.39.7 6.6 LV57.161.810.669.8 5.17.5 7.8 BG54.052.513.762.5 1.64.3 5.6 RO65.557.6 7.064.2 2.84.9 7.9 EU-1560.364.3 8.170.3 0.8 2.2

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

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

6. 6 EUKLEMS, Helsinki 2005 Employment trends, 1995-2004 1995 = 100 * 2001/2002 new methodology in Romania.

7. 7 EUKLEMS, Helsinki 2005 Employment trends, 1995-2004 1995 = 100

8. 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. 9 EUKLEMS, Helsinki 2005 The employment problem in a phase of catching-up (2) > Sectoral patterns

10. 10 EUKLEMS, Helsinki 2005 Output and Employment, 1995-2003 Output Employment Industry Agriculture

11. 11 EUKLEMS, Helsinki 2005 Output and Employment, 1995-2003 Basic Services (Trade, Restaurants, Hotels, etc.) Financial and Business Services Output Employment

12. 12 EUKLEMS, Helsinki 2005 Growth by sectors, 1995-2002 in % p.a. NMS-7 Poland

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

14. 14 EUKLEMS, Helsinki 2005 Employment growth in sectors, 1999-2003 NMS-4NMS-7PL

15. 15 EUKLEMS, Helsinki 2005 Decompositional analysis (1), 1997-2002 (Employment change in component/Employment level in 1997)/Number of years Employment Productivity Output Structure CZ -0.70 -0.42 2.66 -0.71 HU 1.23 -2.62 4.70 -0.21 SI 0.04 -3.28 4.33 -0.32 SK -0.72 -3.04 3.59 0.01 PL -1.84 -4.24 3.30 -0.11 EE -0.88 -5.01 6.02 -0.14 LT -2.14 -4.88 4.82 -0.66 LV -0.08 -4.26 5.95 -0.23 BG -1.13 -6.22 7.10 0.32 RO -3.27 -3.71 1.52 -0.81 EU-15 1.44 -0.79 2.66 -0.25

16. 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. 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. 18 EUKLEMS, Helsinki 2005 Employment by occupations and educational attainment levels

19. 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. 20 EUKLEMS, Helsinki 2005 Educational structure of total labour force, 15-64, 2003

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

22. 22 EUKLEMS, Helsinki 2005 Decompositional analysis (2) 1997-2002 (Employment change in component/Employment level in 1997)/Number of years

23. 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. 24 EUKLEMS, Helsinki 2005 A disaggregated forecasting model of employment in catching-up economies

25. 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. 26 EUKLEMS, Helsinki 2005 Speed of convergence (estimated from large country sample 1975-2002) 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. 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. 28 EUKLEMS, Helsinki 2005 Output shares, 2002 Overrepresentation in Agriculture and Manufacturing Underrepresentation in Services EU-15 mean

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

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

31. 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. 32 EUKLEMS, Helsinki 2005 Forecasts of changes in employment levels, 2002-2007 and 2007-2012 (GDP growth rate: 4% p.a.)

33. 33 EUKLEMS, Helsinki 2005 Dynamics of employment shares,1998-2012 Slovenia Czech Republic Poland Romania EU-15 2002 1998 2012 1998 2012 1998 2012 1998 2012 1998 2012 1998 2012 1998 2012 1998 2012

34. 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. 35 EUKLEMS, Helsinki 2005 Employment developments by educational categories, 2002-2012 (based on 4 % GDP growth per year) Low MediumHigh

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

37. 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. 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. 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