Structural Change, Productivity and Employment in the New EU Member States
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A Service of Leibniz-Informationszentrum econstor Wirtschaft Leibniz Information Centre Make Your Publications Visible. zbw for Economics Havlik, Peter Research Report Structural Change, Productivity and Employment in the New EU Member States wiiw Research Report, No. 313 Provided in Cooperation with: The Vienna Institute for International Economic Studies (wiiw) - Wiener Institut für Internationale Wirtschaftsvergleiche (wiiw) Suggested Citation: Havlik, Peter (2005) : Structural Change, Productivity and Employment in the New EU Member States, wiiw Research Report, No. 313, The Vienna Institute for International Economic Studies (wiiw), Vienna This Version is available at: http://hdl.handle.net/10419/204085 Standard-Nutzungsbedingungen: Terms of use: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Documents in EconStor may be saved and copied for your Zwecken und zum Privatgebrauch gespeichert und kopiert werden. personal and scholarly purposes. 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Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, If the documents have been made available under an Open gelten abweichend von diesen Nutzungsbedingungen die in der dort Content Licence (especially Creative Commons Licences), you genannten Lizenz gewährten Nutzungsrechte. may exercise further usage rights as specified in the indicated licence. www.econstor.eu Forschungsberichte wiiw Research Reports | 313 Peter Havlik Structural Change, Productivity and Employment in the New EU Member States January 2005 Peter Havlik is Deputy Director of wiiw. Peter Havlik Research for this paper was conducted in the context of the project ‘Industrial Restructuring and Structural Change, Implications for Labour Markets in the New EU Member States’, commissioned by EU DG Productivity and Employment, Social Affairs and Equal Opportunities, Employment in the Contract No. VC/2003/0367. New EU Member States Contents Executive summary ..................................................................................................................i 1 Development of GDP, employment and macro-productivity.......................................... 1 2 Changes in broad sectoral structures............................................................................. 6 3 Structural change and productivity growth ................................................................... 10 4 Patterns of productivity catching-up in manufacturing ................................................. 16 5 Productivity and employment growth dilemmas........................................................... 23 References ........................................................................................................................... 27 Appendix............................................................................................................................... 29 List of Tables and Figures Table 1 Long-term growth and productivity catching-up of NMS.................................... 3 Table 2 Decomposition of aggregate and manufacturing productivity growth in NMS (shift-share analysis), 1995-2002 ..................................................................... 15 Table 3 Size of European manufacturing industry after enlargement to EU-25...............17 Table 4 Labour productivity catching-up in manufacturing: NMS vis-à-vis the EU-15, 1995-2002...............................................................................................................21 Table 5 Regression estimates of NMS employment elasticity to GDP growth, 1995-2003......................................................................................................... 26 Table A1 Labour productivity levels in MNS manufacturing industry, 2002.................... 31 Table A2 Relative productivity gains in NMS manufacturing, 1995-2002 (average annual change in % for total manufacturing (D) and relative gains DA to DN, in percentage points) ................................................ 32 Figure 1 GDP, employment and productivity in the EU-15, NMS and Poland, 1995 = 100.......................................................................................................... 1 Figure 2 GDP, employment and macro-productivity in the NMS and EU-15, 1995 = 100................................................................................................................4 Figure 3 Levels of macro-productivity and of GDP per capita in the NMS, EU-15 and EU-25, year 2003......................................................................................... 5 Figure 4 Comparison of NMS and EU-15 gross value added structures in 1990, 1995 and 2002, % of GVA.........................................................................7 Figure 5 Comparison of NMS and EU-15 employment structures in 1990, 1995 and 2003, % of total..........................................................................8 Figure 6a Productivity growth in NMS economic sectors, 1995-2002 (annual averages, gross value added per employed person) ......................... 14 Figure 6b Productivity levels in NMS economic sectors, 2002, EU-15 = 100 (gross value added per employed person, at PPP, EU-15 = 100) .................. 14 Figure 7 Manufacturing employment concentration ratios (CR3) in NMS ..................... 19 Figure 8 Deviations of NMS and EU-15 manufacturing employment structures, 2002 and 1995.................................................................................................. 20 Figure 9 Manufacturing production and employment growth in NMS and EU-15, 2002 (1995 = 100)...................................................................................................... 22 Figure 10 Employment elasticity of GDP growth in selected NMS, 1992-2003............... 25 Figure A1 Manufacturing labour productivity in selected NMS (UVR-based), 1996 and 2002 (Austria = 100)......................................................................... 33 Executive summary This paper provides an overview of longer-term structural developments in the new EU Member States from Central and Eastern Europe (NMS). It analyses structural changes in the NMS’ economies and patterns of productivity catching-up both at macro level and within the individual industries. With the transformational recession of the early 1990s left behind, the majority of the NMS embarked on a path of rapid economic growth during the past decade. They have experienced an impressive productivity catching-up, both at the macroeconomic level and in the manufacturing industry in particular. Yet in most NMS the growth of labour productivity went hand in hand with declining employment, and even with considerable job losses in the manufacturing industry. The structural changes observed during the past decade brought the NMS’ economies nearer to the economic structure observed in the EU-15, but the shifts of labour among individual sectors or industries themselves did not have any marked impact on aggregate productivity growth. Similar to the EU-15, the recent productivity catching-up observed in the NMS resulted overwhelmingly from across-the-board productivity improvements in individual sectors of the economy while employment shifts among sectors had only a negligible effect on aggregate productivity growth. Notwithstanding fast productivity catching-up, the estimated productivity levels indicate that NMS are in this respect still lagging considerably behind the EU-15 economies, implying a huge catching-up potential. The estimated elasticity of employment to production growth is low in all NMS; the recently observed and expected rates of economic growth will in all likelihood not be sufficient for the creation of additional jobs. The required further productivity convergence with the EU-15 may thus be in conflict with the urgently needed employment growth in the NMS; net job creation occurred in just a few services sectors and could not offset the job losses in agriculture and industry. Keywords: structural change, economic growth, productivity, employment, EU enlargement JEL classification: E24, F43, J21, J60, O11, P52 i Peter Havlik Structural change, productivity and employment in the new EU Member States 1 Development of GDP, employment and macro-productivity In the first half of the 1990s, the Central and East European countries which have joined the EU on 1 May 2004 – the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, the Slovak Republic and Slovenia, in the following termed NMS-8 – went through the dramatic phase of the ‘transitional recession’: their GDP and employment recorded considerable declines (Figure 1), due to supply as well as demand shocks caused by the loss of traditional export markets, the disruption of existing supply chains and decision-making structures, sudden trade liberalization and restrictive macroeconomic policies. During 1990-1995, the NMS-8 experienced a cumulated decline of real GDP by 4.7%. This translated into a substantial negative growth differential (‘falling behind’) for the NMS-8 vis-à-vis the EU-15 (Table 1). Figure 1 GDP, employment and productivity in the EU-15, NMS