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The relationship between economic growth and employment

K. Burggraeve, Grégory de Walque and H. Zimmer
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K. Burggraeve: National Bank of Belgium
H. Zimmer: National Bank of Belgium

Economic Review, 2015, issue i, 32-52

Abstract: The article finds that productivity in Belgium has tended to slow down over the past three decades. After controlling for that fundamental tendency, the relationship between persons in employment and economic activity appears generally stable over time throughout the business cycle and is generally unaffected by recessions. In Belgium in particular, in terms of deviation from their respective trends, a 1 % rise in GDP brings a 0.5 % increase in employment. That figure is in line with the European average. The downward trend in productivity is accompanied by a shift to the tertiary sector of the economy. That is also one of the factors behind the decline in average working time. Although the relationship between employment and GDP is very stable throughout the business cycle, the recent financial crisis differs from previous recessions in a general tendency to protect jobs at first, in all twelve economies studied in the article. However, that soon came to an end and the situation returned to normal ; if employment is struggling to pick up, that is essentially because of the weakness of the economic recovery. Finally, it is very clear that firms initially respond to fluctuations in the economy by adjusting the hours worked. In Belgium, the elasticity of those hours to economic activity is about 50 % greater than the elasticity of the number of persons employed in all sectors sensitive to the business cycle.

Keywords: employment; hours worked; labour productivity; business cycle; labour market; Okun’s law (search for similar items in EconPapers)
JEL-codes: E20 E24 E32 J20 J23 (search for similar items in EconPapers)
Date: 2015
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Handle: RePEc:nbb:ecrart:y:2015:m:june:i:i:p:32-52