Trends in employment and the employment elasticity in manufacturing, 1971-92: an international comparison

Abstract

Employment growth in manufacturing is limited by output growth in this sector, but the elasticity of employment with respect to output has varied widely in different regions and economies. This paper focuses attention on the idea that a major determinant of employment elasticity is the way the fruits of output growth are divided between employment growth and wage growth. But before we are able to determine the quantitative dimension of the trade-off, we have to allow for two other factors which affect the size of the cake available to labour in real terms. These are: (i) the elasticity of the wage bill with respect to output, which determines the trend in the share of labour; and (ii) the price effect, depending partly on the rate of inflation and partly on the movements of producer prices relative to consumer prices. A simple decomposition procedure is outlined in the paper which allows us to quantify the relative importance of these factors, and hence give a clearer idea of the labour market outcome leaning to one or other of the two interests, employment growth and real wage growth. The empirical analysis for different regions of the world is carried out on time series data for the manufacturing sector collected by UNIDO from the national surveys of member countries for the decades of the 1970s and the 1980s. Copyright 2003, Oxford University Press.