Is the transition process neutral to the employment–output ratio? Or does ‘jobless growth’ come naturally? The case when allocative and technological effects interact

Abstract

ABSTRACTThis paper applies a two-sector model to demonstrate how industrial structure and sectoral factor intensity matter for a feature characterising a number of transition economies: A divergence between production- and employment growth that has come to be known as ‘jobless growth’. We first show that a combination of conditions regarding industrial structure and sectoral factor intensity must be fulfiled for employment growth to mirror aggregate growth. Second, we introduce a fundamental driver of both industrial structure and factor intensity: the productivity growth gap between sectors of production. We show how changes in the productivity growth gap affect industrial structure as well as factor intensity. These changes are passed through to employment growth in a different way than to aggregate economic growth – hence the divergence between these two growth measures and the phenomenon of jobless growth. The paper shows how the structural changes inherent in the transition process are not neutral to the employment–output ratio.