Employment, productivity and models of growth in the EU

Abstract

Purpose – The purpose of this paper is to identify the main “models of growth” characterising the EU countries in the last two decades, with particular reference to the employment‐productivity relationship, and to reveal the key determinants of productivity.Design/methodology/approach – After a survey of the relevant literature, the empirical section analyses the “models of growth” by graphical inspection, identifying four models (for EU‐27 in the 1990‐2008 period): extensive, intensive, virtuous, and stagnant. Then different econometric investigations (beta convergence, dynamic panel with GMM estimation, fixed effects panel, cross‐section) are used to test the “diminishing returns of employment rate” hypothesis (for the 2000‐2006 period), to assess the convergence processes and to determine the key variables affecting productivity.Findings – The main finding is the confirmation of the hypothesis mentioned: high employment growth is likely to lead to slower productivity growth. Moreover, besides verifying...