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The puzzle on the causality of the productivity and employment growth: evidence from firm-level data

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  • Nina Ponikvar
  • Katja Zajc Kejžar

Abstract

This article analyses the causality between the firm's employment and productivity growth based on the population of manufacturing firms registered in Slovenia in the 1994--2003 period. By using the system GMM estimator, we show that the employment--productivity growth trade-off does not exist. Moreover, we find significant complementarities between employment and productivity growth, mostly driven by SMEs and firms from high-tech industries. Accordingly, we argue that the job-creation policy and productivity-promoting policy are complementary rather than trade-offs and that policymakers should focus on the optimal policy mix that provides the highest aggregate effect with regard to all growth aspects. Further, significant differences among the factors of employment and productivity growth suggest that job-creation policy measures are most successful when targeted at younger export-oriented firms with high total factor productivity levels and capital-intensive production. Meanwhile, the outcome of policy measures aimed at promoting productivity increases with a firm's capital intensity and size up to the threshold employment level and with the intensity of market competition.

Suggested Citation

  • Nina Ponikvar & Katja Zajc Kejžar, 2014. "The puzzle on the causality of the productivity and employment growth: evidence from firm-level data," Applied Economics, Taylor & Francis Journals, vol. 46(14), pages 1642-1651, May.
    • Handle: RePEc:taf:applec:v:46:y:2014:i:14:p:1642-1651
    DOI: 10.1080/00036846.2014.881974
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    1. Harrison, Rupert & Jaumandreu, Jordi & Mairesse, Jacques & Peters, Bettina, 2014. "Does innovation stimulate employment? A firm-level analysis using comparable micro-data from four European countries," International Journal of Industrial Organization, Elsevier, vol. 35(C), pages 29-43.
    2. Gordon, Robert J, 1995. "Is There a Trade-off between Unemployment and Productivity Growth?," CEPR Discussion Papers 1159, C.E.P.R. Discussion Papers.
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