Labour and product market dynamics: macro, structural, micro factors and the varying employment/output elasticity

Paolo Piacentini

No 62, Working Papers from ASTRIL - Associazione Studi e Ricerche Interdisciplinari sul Lavoro

Abstract: “Employment and unemployment are determined in the product market, not the labour market”. Thirlwall (1993) put this statement at the first place in a list of six fundamental propositions of Keynesian Economics. This view remains central in a Keynesian approach in the macroeconomic assessment of employment activation, and marks the distance from ‘mainstream’ Labour Economics, engaging in partial analyses of the labour market, modelling for solutions of a stronger or weaker notion for some ‘equilibrium.’ However, while keeping firm the Keynesian direction of causality, a stylized fact evidenced for the Italian case, of a wide instability of employment/output elasticity, suggests us further investigation, for the employment outcomes in the medium run and over cyclical episodes. That’s to say, the quantitative result for additions (reductions) of labour use, given a percentage rise (contraction) of ‘GDP’ , widely differ amongst the countries, or within the same country in diverse epoch or cyclical episode. When employment is simply measured in terms of unadjusted numbers, this is mainly to be ascribed to the possibility of a ‘fractal’ partition of a total labour, into diverse segments for intensity and continuity of use, given the increasing resort to part-time, discontinuous, and short-term contracts for labour engagements. However, even after accounting for the variability of working time , and measuring employment in standardized units, elasticity differentials still appear and more ‘employment friendly’ patterns of growth show their reverse side, a lesser capability of enhancing productivity growth. Differentials in the employment content of output need then to be further explained. Structural composition of the economy and its dynamics, accounting for the composition effects within total employment outcomes, is introduced. After the ‘structural’ factors, it remains eventually to be questioned whether we should admit a residual influence of the institutional arrangements in the exchange of labour , in influencing ‘labour intensity of growth.’ The paper is finalized to first stage discussion addressing to the fundamental question, upon ‘why the employment intensity of growth varies over time and space”

Keywords: Demand for labour; Variable employment; output elasticities (search for similar items in EconPapers)
JEL-codes: J23 J63 (search for similar items in EconPapers)
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