Enrico Marelli, Marcello Signorelli and Joanna Tyrowicz

1. Crises and Joint Employment-Productivity Dynamics: A Comparative Perspective for European Countries Enrico Marelli, Marcello Signorelli and Joanna Tyrowicz

2. Motivation

3. Motivation • Business cycle theory: • any change in labor usage can be decomposed into • a movement along a marginal productivity schedule • and a shift of the schedule • Mulligan (2009) decomposes this differential for the current crisis and compares to the previous ones

4. Intuition • At the „hip” of the cycletwothingscoincide: • high demand for products • high demand for labour and high labourproductivity • Just after the „hip” demand no longerincreases => adjustmentsnecessary • either on labourdemand with unchangeddemand/productivityschedules • or on productivity – upwardshift of the demand/productivityschedules • Overlongerhorizon • adjustment of type (a) leads to permamentreduction in employment (tillnextpositivedemandshock) • adjustment of type (b) impliesgrowinglabourproductivity => efficiency and TFP

5. Outline • Method • Data • Findings • Conclusions

6. Method • Have to find a „hip” in the cycle… • … anchor on the „hip” the changes in productivity and employment • how to measure productivity? • how to measure employment? • At the end we expect rather coherent: • shifts OF the demand/productivity schedules and • shifts ALONG the demand/productivity schedules • We do that for EU countries for as many countries as there is data

7. Method – step by step • Identify the boom and the bust • Find peak and anchor there • Compute cummulated change of labour use and productivity • Graph them one against the other • Repeat for all countries for all cycles

8. Method – 1. finding the hip • Short term and long term fluctuations - HP filter • After filtering away the trend – identify peaks Second Third First ?

9. Method – 2. measuring productivity and employment • Employment • Ideally: hoursworked in economy • Reality: not available for any of the EU countries • Working/employed/FTE – hugedifferences • Eventually: working, no FTE • Labourproductivity: • Essentially: output per hourworked • Reality: no output (GDP) no hoursworked (heads) • Eventually: GDP/working

10. Method – 3. link labour productivity and employment • Refresh Mulligan • Nice RBC-coherent pattern • In reality for European economies? ???

11. Data

12. Results - identified „hips”

13. Results – identified „hips”

14. Results – identified „hips”

15. Results – groups of countries • Analysis reveals few adjustment patterns in the last crisis • (a) a canonical RBC; • (b) reduced (or absent) change in employment and reductions in productivity; • (c) a contemporaneous reduction in both productivity and employment (profound recession); • (d) a growth or preservation of both employment and productivity. • These reactions are not like in the past.

16. Group 1 – RBC consistent • Note: solid black line (late 2000s); dashed black line (late 1990s for Hungary and early 1990s for Spain)

17. Group 2 – eventually RBC consistent

18. Group 3 – productivity drop

19. Group 4 – both drop

20. Group 5 – all quiet

21. Conclusions • We applied simpletool to seeifrecentcrisisis RBC type in Europe • We alsocompareit to previouscrises • Many of the past were RBC in nature • Now – onlyfewcountrieshave „adjustment” patterns as economistswouldlikeit • Policies to stop employmentadjustmentat the expense of productivity • Somecountries „on the safeside” evenif GDP contracts • Somecountries in deeprecession

22. Thankyou for yourattention!