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Does employment affect productivity?

Author

Listed:
  • Albert van der Horst
  • Hugo Rojas-Romagosa
  • Leon Bettendorf

    (CPB Netherlands Bureau for Economic Policy Analysis)

Abstract

We investigate the trade-off between employment and labour productivity in a panel of OECD countries in 1970-2003. The endogeneity of employment is shown to matter crucially for assessing its effect on productivity. Estimating a structural model with 3SLS, where employment depends on demographic variables and labour market institutions, we find that employment tends to boost productivity. Literature ignoring the endogeneity of employment, including our own OLS results, incorrectly finds a negative or insignificant effect from employment on productivity. The productivity gain is, however, not a guaranteed by-product of additional employment, as regressions with rolling windows reveal.

Suggested Citation

  • Albert van der Horst & Hugo Rojas-Romagosa & Leon Bettendorf, 2009. "Does employment affect productivity?," CPB Discussion Paper 119, CPB Netherlands Bureau for Economic Policy Analysis.
    • Handle: RePEc:cpb:discus:119
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    References listed on IDEAS

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    1. Emilia Herman & Maria-Ana Georgescu, 2012. "Is there a trade-off between employment and labour productivity in new EU member states?," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 15(45), pages 303-318, December.

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    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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