IDEAS home Printed from https://ideas.repec.org/a/zna/indecs/v19y2021i1p94-105.html
   My bibliography  Save this article

Empirical analysis of the elasticity of employment to output gap in the republic of croatia

Author

Listed:
  • Željko Kuèiš

    (AFM d.o.o., Zagreb, Croatia)

  • Irena Paliæ

    (University of Zagreb – Faculty of Economics & Business, Zagreb, Croatia)

Abstract

This article deals with the impact of cyclical activity of GDP on employment in the Republic of Croatia in the period from 2000 to 2020. According to the prevailing economic paradigm, employment growth follows GDP growth in the long run, but cyclical changes in GDP are also an important factor in monitoring economic developments and require adjustments by economic policy makers in the short term. Okun’s law, based on the natural unemployment rate, is often used as a guide for the purpose of determining corrective economic policy measures. In practice, the unemployment rate is not a particularly reliable labour market variable, so this study sought to empirically examine how cyclical GDP activity affects a much more reliable labour market variable - the number of employed. Empirical studies of the impact of the income gap on employment are very rare compared to those dealing with the impact of GDP growth on employment, so this study on the example of the Republic of Croatia aimed to show that employment elasticity with respect to income gap can serve as a measure of the impact of cyclical economic activity on the number of employees. Empirical analysis of the impact of the income gap on employment was conducted using the vector error correction model (VEC). The results of the analysis indicate a statistically significant impact of the cyclical component of GDP on cyclical employment in the Croatian economy and therefore the authors suggest that this approach should be used as a complementary to Okun’s law.

Suggested Citation

  • Željko Kuèiš & Irena Paliæ, 2021. "Empirical analysis of the elasticity of employment to output gap in the republic of croatia," Interdisciplinary Description of Complex Systems - scientific journal, Croatian Interdisciplinary Society Provider Homepage: http://indecs.eu, vol. 19(1), pages 94-105.
    • Handle: RePEc:zna:indecs:v:19:y:2021:i:1:p:94-105
    as

    Download full text from publisher

    File URL: https://www.indecs.eu/2021/indecs2021-pp94-105.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Hanusch, Marek, 2012. "Jobless growth ? Okun's law in East Asia," Policy Research Working Paper Series 6156, The World Bank.
    2. Hodrick, Robert J & Prescott, Edward C, 1997. "Postwar U.S. Business Cycles: An Empirical Investigation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(1), pages 1-16, February.
    3. R. W. Latham & D. A. Peel, 1975. "The Determinants of the Natural Rate of Unemployment in the Neoclassical Model," The Economic Record, The Economic Society of Australia, vol. 51(3), pages 308-319, September.
    4. Lütkepohl,Helmut & Krätzig,Markus (ed.), 2004. "Applied Time Series Econometrics," Cambridge Books, Cambridge University Press, number 9780521547871, November.
    5. Davide Furceri & Ernesto Crivelli & Mr. Joël Toujas-Bernate, 2012. "Can Policies Affect Employment Intensity of Growth? A Cross-Country Analysis," IMF Working Papers 2012/218, International Monetary Fund.
    6. Gordon, Robert J., 1979. "A comment on the Perloff and Wachter paper," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 10(1), pages 187-194, January.
    7. Pavlina R. Tcherneva, 2008. "Keynes's Approach to Full Employment: Aggregate or Targeted Demand?," Economics Working Paper Archive wp_542, Levy Economics Institute.
    8. Tim Congdon, 2008. "Two Concepts of the Output Gap," World Economics, World Economics, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 9(1), pages 147-175, January.
    9. Zidong An & Tayeb Ghazi & Nathalie Gonzalez Prieto & Aomar Ibourk, 2019. "Growth and Jobs in Developing Economies: Trends and Cycles," Open Economies Review, Springer, vol. 30(5), pages 875-893, November.
    10. Mr. Alvar Kangur & Koralai Kirabaeva & Jean-Marc Natal & Simon Voigts, 2019. "How Informative Are Real Time Output Gap Estimates in Europe?," IMF Working Papers 2019/200, International Monetary Fund.
    11. Lütkepohl,Helmut & Krätzig,Markus (ed.), 2004. "Applied Time Series Econometrics," Cambridge Books, Cambridge University Press, number 9780521839198, November.
    12. Latham, R W & Peel, D A, 1975. "The Determinants of the Natural Rate of Unemployment in the Neoclassical Model," The Economic Record, The Economic Society of Australia, vol. 51(135), pages 308-319, September.
    13. Perloff, Jeffrey M. & Wachter, Michael L., 1979. "A production function--nonaccelerating inflation approach to potential output : Is measured potential output too high?," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 10(1), pages 113-163, January.
    14. Jelle Barkema & Tryggvi Gudmundsson & Mr. Mico Mrkaic, 2020. "What Do We Talk About When We Talk About Output Gaps?," IMF Working Papers 2020/259, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Željko Kuèiš & Irena Paliæ, 2021. "Empirical analysis of the elasticity of employment to output gap in the republic of croatia," Interdisciplinary Description of Complex Systems - scientific journal, Croatian Interdisciplinary Society Provider Homepage: http://indecs.eu, vol. 19(1), pages 94-105.
    2. Karen Davtyan, 2016. "Interrelation among Economic Growth, Income Inequality, and Fiscal Performance: Evidence from Anglo-Saxon Countries," Hacienda Pública Española / Review of Public Economics, IEF, vol. 217(2), pages 37-66, June.
    3. Mónica Carmona & Emilio Congregado & Antonio A. Golpe, 2012. "Comovement Between Self-Employment and Macroeconomic Variables," SAGE Open, , vol. 2(2), pages 21582440124, May.
    4. João Sousa Andrade, 2007. "Uma Aplicação da Lei de Okun em Portugal," GEMF Working Papers 2007-04, GEMF, Faculty of Economics, University of Coimbra.
    5. Michal Franta, 2012. "Macroeconomic Effects of Fiscal Policy in the Czech Republic: Evidence Based on Various Identification Approaches in a VAR Framework," Working Papers 2012/13, Czech National Bank.
    6. Julien Malizard, 2014. "Dépenses militaires et croissance économique dans un contexte non linéaire. Le cas français," Revue économique, Presses de Sciences-Po, vol. 65(3), pages 601-618.
    7. Bernstein, Ronald & Madlener, Reinhard, 2015. "Short- and long-run electricity demand elasticities at the subsectoral level: A cointegration analysis for German manufacturing industries," Energy Economics, Elsevier, vol. 48(C), pages 178-187.
    8. Bonga-Bonga, Lumengo & Kabundi, Alain, 2015. "Monetary Policy Instrument and Inflation in South Africa: Structural Vector Error Correction Model Approach," MPRA Paper 63731, University Library of Munich, Germany.
    9. Kyritsis, Evangelos & Serletis, Apostolos, 2018. "The zero lower bound and market spillovers: Evidence from the G7 and Norway," Research in International Business and Finance, Elsevier, vol. 44(C), pages 100-123.
    10. Palić Irena & Hodžić Sabina & Dumičić Ksenija, 2019. "Personal Income Taxation Determinants in Federation of Bosnia and Herzegovina," Business Systems Research, Sciendo, vol. 10(1), pages 153-163, April.
    11. David S. Jacks & Martin Stuermer, 2021. "Dry bulk shipping and the evolution of maritime transport costs, 1850–2020," Australian Economic History Review, Economic History Society of Australia and New Zealand, vol. 61(2), pages 204-227, July.
    12. Grau, Aaron Stephan Alexander & Hockmann, Heinrich, 2017. "Estimating oligopsony power on two vertically integrated markets," 2017 International Congress, August 28-September 1, 2017, Parma, Italy 261277, European Association of Agricultural Economists.
    13. Serrao, Amilcar, 2016. "A controversial debate between financial speculation and changes in agricultural commodity spot prices," 2016 Annual Meeting, July 31-August 2, Boston, Massachusetts 235638, Agricultural and Applied Economics Association.
    14. repec:zbw:bofitp:2008_005 is not listed on IDEAS
    15. Ralf Brüggemann & Helmut Lütkepohl, 2006. "A small monetary system for the euro area based on German data," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 21(6), pages 683-702, September.
    16. Margherita Grasso & Matteo Manera & Aline Chiabai & Anil Markandya, 2012. "The Health Effects of Climate Change: A Survey of Recent Quantitative Research," IJERPH, MDPI, vol. 9(5), pages 1-25, April.
    17. Theodore Panagiotidis & Panagiotis Printzis, 2016. "On the macroeconomic determinants of the housing market in Greece: a VECM approach," International Economics and Economic Policy, Springer, vol. 13(3), pages 387-409, July.
    18. Pham The Anh, 2007. "Nominal Rigidities and The Real Effects of Monetary Policy in a Structural VAR Model," Working Papers 06, Development and Policies Research Center (DEPOCEN), Vietnam.
    19. Priscila Gomes De Castro & Elaine Aparecida Fernandes & Antônio Carvalho Campo, 2014. "Os Determinantes Do Investimento Direto Estrangeiro No Brasil E No México: Uma Análise Empírica," Anais do XLI Encontro Nacional de Economia [Proceedings of the 41st Brazilian Economics Meeting] 118, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].
    20. Helmut Lütkepohl, 2013. "Vector autoregressive models," Chapters, in: Nigar Hashimzade & Michael A. Thornton (ed.), Handbook of Research Methods and Applications in Empirical Macroeconomics, chapter 6, pages 139-164, Edward Elgar Publishing.
    21. Jamal Bouoiyour & Refk Selmi, 2017. "The Bitcoin price formation: Beyond the fundamental sources," Working Papers hal-01548710, HAL.

    More about this item

    Keywords

    employment; output gap; vector error correction model; Okun’s law; employment intensity of GDP growth;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zna:indecs:v:19:y:2021:i:1:p:94-105. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Josip Stepanic (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.