Prague Economic Papers 2017, 26(4):422-437 | DOI: 10.18267/j.pep.623

Employment Growth and Labour Elasticity in V4 Countries: Structural Decomposition Analysis

Martin Hudcovský1, Martin Lábaj2, Karol Morvay3
1 Department of Economic Policy, Faculty of National Economy, University of Economics in Bratislava, Slovakia; Institute of Economic Research, Slovak Academy of Sciences, Slovakia (martin.hudcovsky@euba.sk)
2 Department of Economic Policy, Faculty of National Economy, University of Economics in Bratislava, Slovakia; Institute of Economic Research, Slovak Academy of Sciences, Slovakia (martin.labaj@euba.sk)
3 Department of Economic Policy, Faculty of National Economy, University of Economics in Bratislava, Slovakia; Institute of Economic Research, Slovak Academy of Sciences, Slovakia (karol.morvay@euba.sk)

In the present paper, we analyse the determinants of employment growth in V4 countries. While a standard approach relies on the parametric estimation of labour elasticity coefficients, we employ a novel approach based on structural decomposition analysis. This allows us to identify several determinants which mitigate the effects of economic growth on employment. We decompose the overall change in employment into the contribution of six factors: changes in labour productivity, changes in the import of intermediate products, changes in the structure of production, changes in the final demand structure by industries and by sectors, and a change in final demand volume. We show that besides the generally accepted influence of labour productivity growth on employment, other factors such as structural changes and changes in final demand played an important role in employment changes. These results shed some light on low labour elasticity in V4 countries and go beyond the simple labour productivity growth argument.

Keywords: structural decomposition analysis, labour elasticity, V4 countries, employment
JEL classification: C67, J21

Published: August 1, 2017  Show citation

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Hudcovský, M., Lábaj, M., & Morvay, K. (2017). Employment Growth and Labour Elasticity in V4 Countries: Structural Decomposition Analysis. Prague Economic Papers, 26(4), 422-437. doi: 10.18267/j.pep.623
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