Jobless Growth in the Central and East European Countries: A Country-Specific Panel Data Analysis of the Manufacturing Industry

Abstract

This paper estimates a labor demand equation based on the panel data of the manufacturing industries in the Central and East European countries of Czech Republic, Hungary, Poland, Slovakia, Slovenia, Lithuania, Bulgaria, and Romania. It tests the effect of domestic factors (wages and output) and international factors (exports, imports, and foreign direct investment, or FDI) on employment during the era of posttransition recovery. The findings indicate that employment does not respond to wages in more than half the cases. The output elasticity of labor demand is mostly positive, but low; in a number of cases, employment is completely delinked from output. An impressive speed of integration to the European economic sphere through FDI and international trade has not prevented job losses in the manufacturing industry. There are very few cases of positive effects, but insignificant effects of trade and FDI dominate the findings, with some evidence of negative effects as well.