Structural Change in Central and South Eastern Europe—Does Technological Efficiency Harm the Labour Market?

Abstract

According to Kuznets, modern economic growth entails structural change. The share of the broad economic sectors (agriculture, manufacturing and services), in value added and employment, has undergone a significant transformation also in the post socialist Central Eastern European and the South Eastern European economies, just like in the developed countries with somewhat lower dominance of the service sector. This phenomenon was widely explained by economists through technological development having a characteristically negative impact on employment within the same industry in which it is adopted. As preceding empirical research focused mainly on developed industrial countries including old EU member states, the purpose of this paper is to examine structural change in 13 Central and South Eastern European EU member economies with special emphasis on the impact of own-industry productivity on employment with OLS and GMM panel regressions. This paper reveals that the productivity increase in all the sectors goes together with the decrease in employment within the sectors in the case of OLS estimations, whereas it produces less evident results in the GMM model framework when controlled for other sectors’ and countries’ productivity and employment processes. Involving further country-, time- and industry-specific variables in the regression, we find that it is mostly manufacturing that is negatively hit by these additional factors (such as relatively higher openness or EU level investment activity) whereas productivity does not necessarily harm the sustainability of workplaces in this sector. The paper also ascertains that there is a large diversity among the selected emerging European economies with regard to economic structures.