Robert Stehrer

Wiener Institut für Internationale Wirtschaftsvergleiche

The Vienna Institute for International Economic Studies

www.wiiw.ac.at

Employment Structures in the EU New

Member States: The Impact of Output,

Productivity and Structural Change

Robert StehrerProject ‚Industrial Restructuring and Implications for Labour Markets in the New EU

Member States‘, commissioned by EU DG Employment, Social Affairs and Equal

Opportunities, Contract No. VC/2003/0367

EUKLEMS meeting, Helsinki, June 2005

2 EUKLEMS, Helsinki 2005

Topics

> The employment problem in a phase of catching-up– The aggregate level

– Structural features

> The U-shaped pattern of employment dynamics

> Employment patterns by occupations and educational attainment levels

> A disaggregated forecasting model

> Forecast scenarios 2003-2012


Overall situation in NMS Employment Unemp. Part. GDP growth rates

rates rates rates

1996 2003 2003 2002 1995-2004 2003 2004

CZ 69.3 64.7 7.8 70.5 2.4 3.7 3.8

HU 52.1 57.0 5.9 59.5 3.4 3.0 3.9

SI 61.6 62.5 6.7 68.1 4.1 2.5 4.2

SK 61.9 57.7 17.4 69.5 4.8 4.5 4.5

PL 58.4 51.2 19.6 64.9 4.7 3.8 5.4

EE 64.9 62.9 10.0 68.3 5.0 5.1 6.2

LT 60.3 61.1 12.4 69.9 4.3 9.7 6.6

LV 57.1 61.8 10.6 69.8 5.1 7.5 7.8

BG 54.0 52.5 13.7 62.5 1.6 4.3 5.6

RO 65.5 57.6 7.0 64.2 2.8 4.9 7.9

EU-15 60.3 64.3 8.1 70.3 0.8 2.2


The employment problem in a The employment problem in a

phase of catching-up (1)phase of catching-up (1)

>The aggregate picture


90

100

110

120

130

140

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Employment GDP

Employment and GDP growth 1995 = 100

EU-15

90

100

110

120

130

140

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Employment GDP

NMS-10


Employment trends, 1995-20041995 = 100

* 2001/2002 new methodology in Romania.

80

90

100

110

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004


Employment trends, 1995-20041995 = 100

80

90

100

110

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

CZ HU PL SK SI BG


Productivity levels in NMS economic sectors, 2002

relative to EU-15(gross value added per employed person at PPPs, EU-15 = 100)

0

10

20

30

40

50

60

70

80

90

100

Agriculture Industry Basic services Financialservices

Total

NM4 PL BG,RO


The employment problem in a The employment problem in a

phase of catching-up (2)phase of catching-up (2)

>Sectoral patterns


Output and Employment, 1995-2003

NMS-7 (CZ, HU, SK, SI, EE, LV, LT)

60.070.080.090.0

100.0110.0120.0130.0

1995 1996 1997 1998 1999 2000 2001 2002 2003

Poland

60.070.080.090.0

100.0110.0120.0130.0

1995 1996 1997 1998 1999 2000 2001 2002 2003

Output Employment


60.0

80.0

100.0

120.0

140.0

1995 1996 1997 1998 1999 2000 2001 2002 2003

Poland

60.0

80.0

100.0

120.0

140.0

1995 1996 1997 1998 1999 2000 2001 2002 2003

IndustryAgriculture


Output and Employment, 1995-2003


60.0

80.0

100.0

120.0

140.0

160.0

1995 1996 1997 1998 1999 2000 2001 2002 2003

Poland

60.0

80.0

100.0

120.0

140.0

160.0

1995 1996 1997 1998 1999 2000 2001 2002 2003

Basic Services (Trade, Restaurants, Hotels, etc.)


60.0

80.0

100.0

120.0

140.0

160.0

1995 1996 1997 1998 1999 2000 2001 2002 2003

Poland

60.0

80.0

100.0

120.0

140.0

160.0

1995 1996 1997 1998 1999 2000 2001 2002 2003

Financial and Business Services

Output Employment


-6-4

-2024

68

Agriculture, forestry,fishing

Industry total Trade, hotels Finance and businessserv.

Value added Productivity Employment

Growth by sectors, 1995-2002 in % p.a.

NMS-7

-6-4

-20

24

68

Agriculture, forestry,fishing

Industry total Trade, hotels Finance and businessserv.

Poland


-9 -6 -3 0 3 6 9 12

Health and social work

Education

Public administration

Community services

low skill sectors (G-I)

high skill sectors (J,K)

Market services

low skill sectors

medium skill sectors

high skill sectors

Secondary sector

Primary sector

Divergence of employment shares from EU-15 structure, 2003

NMS-4 NMS-7 PL


Employment growth in sectors, 1999-2003

-24 -21 -18 -15 -12 -9 -6 -3 0 3 6 9 12 15 18 21 24

Health and social work

Education

Public administration

Community services

low-skill sectors (G-I)

high-skill sectors (J,K)

Market services

low-skill sectors

medium-skill sectors

high-skill sectors

Secondary sector

Primary sector

Total Employed

NMS-4 NMS-7 PL


Decompositional analysis (1), 1997-2002(Employment change in component/Employment level in 1997)/Number of years

Employment Productivity Output Structure

CZ -0.70 -0.42 2.66 -0.71

HU 1.23 -2.62 4.70 -0.21

SI 0.04 -3.28 4.33 -0.32

SK -0.72 -3.04 3.59 0.01

PL -1.84 -4.24 3.30 -0.11

EE -0.88 -5.01 6.02 -0.14

LT -2.14 -4.88 4.82 -0.66

LV -0.08 -4.26 5.95 -0.23

BG -1.13 -6.22 7.10 0.32

RO -3.27 -3.71 1.52 -0.81

EU-15 1.44 -0.79 2.66 -0.25


Labour market developments in NMs –Explanatory framework based on structural dynamics

Types of structural dynamics:

> (i) Productivity dynamics: differentiated by sectors depending upon the scope

for productivity catching-up (gap)

> (ii) Output dynamics: relative growth/shrinkage of sectors

which are under-/over-represented (structural deviation)

> (iii) Sectoral and aggregate employment dynamics:

result from (i) and (ii)

> (iv) Further consequences: adjustments in the demand and

supply of skills


Stylized U-shaped pattern of employment

Employment levels

Time(1) Overall high productivity growth(2) Strong presence of sectors with declining output shares and strong productivity growth

(1) Lower productivity growth (smaller gap)(2)Increasing weight of sectors with strong output growth and lower productivity growth

Convergence in output structures (with more advanced economies) and general productivity catching-up


Employment by occupations and Employment by occupations and

educational attainment levelseducational attainment levels


Employment by educational attainment

> Sectoral adjustments

> Change in occupational structure within sectors

> Change in educational structure by occupation & sector

> Labour supply adjustment in educational attainment


Educational structure of

total labour force, 15-64, 2003

0

10

20

30

40

50

60

70

80

EU-15 EU-S NMS-8 AT

Low Medium High


Employment by educational categories1992-2003

5060708090

100110120130140

1992 1994 1996 1998 2000 2002

Hungary:(Index: 1992 = 100)

40

60

80

100

120

140

160

180

1993 1995 1997 1999 2001 2003

Poland:(Index: 1992 = 100)

5060708090

100110120130

1993 1995 1997 1999 2001 2003

Czech Republic:(Index: 1993 = 100)

Primary education

Secondary education

Tertiary education

Total employment

2003


Decompositional analysis (2) 1997-2002(Employment change in component/Employment level in 1997)/Number of years

Total Employment Sectoral Occ Edu

NMS-4 Low -0.69 0.02 -0.15 -0.11 -0.49

Medium 0.31 -0.10 0.06 -0.01 0.40

High 0.31 0.01 0.09 0.12 0.10

PL Low -0.95 -0.33 0.07 -0.09 -0.63

Medium -1.89 -1.58 -0.21 0.09 -0.15

High 0.63 -0.31 0.14 0.00 0.78

Baltics Low -0.32 -0.07 -0.20 0.02 -0.11

Medium 1.24 -0.31 -0.07 0.05 1.70

High -1.41 -0.23 0.26 -0.02 -1.49

BG, RO Low -2.02 -0.65 -0.70 -0.06 -0.78

Medium -0.71 -1.08 0.35 0.00 0.16

High 0.78 -0.23 0.35 0.06 0.62


Comparison to EU-15

> BCHS jobs are overrepresented in sectors (especially Agriculture)

> Medium educated are overrepresented in all sectors

> Medium educated are overrepresented in occupational categories

> supply side plays an important role


A disaggregated forecasting model of

employment in catching-up economies

dtYˆlexp)0(L)t(L

t

0 iiii α


Labour demand

> Overall GDP growth

> Sectoral labour productivity dynamics: – Catching-up towards EU-15

> Structural change: – Convergence in output shares towards EU-15 average

– Convergence in occupational structures within sector

> Speed of convergence depends on initial gap and estimated parameters


Speed of convergence(estimated from large country sample 1975-2002)

On average ~23 years to close the productivity gap by half

Half-time: Productivity Output sharesAgriculture 35 years 58 yearsManufacturing 23 years 18 yearsRetail 35 years 30 yearsBusiness services 17 years 43 yearsPublic services 20 years 18 years

+ long-term ‚exogenous‘ trends


Productivity levels in % of EU-15 by

country and sector, 2002 (the further behind, the faster you grow)

0

20

40

60

80

100

120

SI CZ HU SK PL EE LT LV RO BG

arithmetic mean

EU-15 = 100


Output shares, 2002Overrepresentation in Agriculture and Manufacturing

Underrepresentation in Services

0

5

10

15

20

25

30

35

40


EU-15 mean


GDP growth rates to keep employment

constant

0.03

0.04

0.05

0.06

0.07

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

BG CZ EE HU LT LV PL RO SI SK


Employment levels (GDP growth rate: 4 % p.a.)(2002 = 1)

0,80

0,85

0,90

0,95

1,00

1,05

1,10

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012


Bulgaria, Romania

NMS-4

Poland, EstoniaLatvia, Lithuania


The importance of GDP growth

(Employment 2012 in per cent of 2002)

-20

-15

-10

-5

0

5

10

15

20

SI CZ HU SK PL EE LT LV BG RO

4% 5% variable

Note: variable scenario assuming ex =0.02 and beta=-0.03 (GDP per capita)


Forecasts of changes in employment levels,

2002-2007 and 2007-2012(GDP growth rate: 4% p.a.)

-1000000

-800000

-600000

-400000

-200000

0

200000

400000


2002-2007 2007-2012


Dynamics of employment shares,1998-2012

0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

0.40

0.45

AB CDE F GH I JK LQ

0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

0.40

0.45

AB CDE F GH I JK LQ

Slovenia

0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

0.40

0.45

AB CDE F GH I JK LQ

0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

0.40

0.45

AB CDE F GH I JK LQ

0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

0.40

0.45

AB CDE F GH I JK LQ

0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

0.40

0.45

AB CDE F GH I JK LQ

Czech Republic

0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

0.40

0.45

AB CDE F GH I JK LQ

Poland

0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

0.40

0.45

AB CDE F GH I JK LQ

Romania

EU-15 2002

19982012

19982012

19982012

1998

2012

19982012

1998

2012

1998

2012

19982012


Occupation and Education

Change in demand for occupations and educations:

> Convergence in occupational structures by sectors to EU-15 mean

> Assumption of constant educational attainment structure by occupation

and sector (no displacement effect)


Employment developments by educational categories, 2002-2012(based on 4 % GDP growth per year)

Low Medium HighCzech Republic

0.50

0.60

0.70

0.80

0.90

1.00

1.10

1.20

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Slovenia

0.50

0.60

0.70

0.80

0.90

1.00

1.10

1.20

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Poland

0.50

0.60

0.70

0.80

0.90

1.00

1.10

1.20

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Romania

0.50

0.60

0.70

0.80

0.90

1.00

1.10

1.20

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012


Changes in demand structure by education,

2012, indices 2002 = 1

-6,00

-4,00

-2,00

0,00

2,00

4,00

6,00


Low Medium High


The supply side

Change in labour supply (Terry Ward and Pawel Gajewski)

> Working-age population: -0.5 % p.a.

> Supply of low-educated: -1 to -3 % p.a.

> Highly educated: +1 to +3 % p.a.

> Effects on participation rates?


Summary points (1)

Labour market developments in NMS

> Low employment elasticity compared to EU-15

> Strong sectoral reallocation of employment which results from

sectoral (output) convergence and

differential productivity catching-up dynamics

> Overall longer-term pattern: U-shaped aggregate employment path

> Effects on skill demands:

Strongly negative employment trends of the least qualified

Rise in the demand for highly skilled

> Supply adjustments in educational attainment – age cohort effects


Summary points (2): Future developments

> Tension between productivity catching-up (potential is still high), sectoral

convergence and employment growth

> Jobless growth may continue

> How to transform high productivity growth rates in even higher output growth

rates?

> Structural problems: Low educated Regional imbalances Age cohorts

Documents

Robert Stehrer