Macroeconomic Policy, Output, and Employment: Is There Evidence of Jobless Growth?

This chapter looks at the links between economic growth and employment trends in the countries of the Region during the transition to a market economy and assesses the possible roles of macroeconomic policies in shaping these links. Output and employment fell significantly in the early phases of the transition in all countries of the Region. In the subsequent phases of output recovery, employment has been somewhat slow to grow, giving rise to the concern that the transition countries were developing symptoms of a jobless growth, or at least of low-employment-content growth. The macroeconomic performance of transition economies is marked by two major episodes of output loss, which have also affected the links between subsequent output and employment. The first was the widely documented transitional recession; the second was the recession following the 1998 Russian financial crisis. During the first episode, the output loss brought a decrease in employment and an increase in unemployment. Yet, such labor market adjustment was smaller in the CIS countries than in CEE countries, partly because the former group of countries experienced large wage flexibility. This chapter argues that the labor market response to the second episode was different in CEE countries that had progressed the most in the transition. In those countries, the output recovery was not associated with job creation. This chapter assesses whether jobless rowth in those CEE countries can be accounted for by a particular set of macroeconomic conditions. It suggests that the positive link between employment and output growth was potentially still present, but it was counterbalanced by a combination of high real interest rates and a loose underlying fiscal policy. In the years to come, low real interest rates, possibly linked to euro adoption, and strong emphasis on fiscal discipline may prove beneficial for the job-creation potential of CEE countries. This chapter is organized as follows: Section 1 analyzes the relationship between output and labor market variables during the different transition periods. Section 2 discusses the possible channels through which macroeconomic policies might have lessened the responsiveness of employment to economic growth. Section 3 presents the employment outlook in CEE, in view of EU accession, and in the CIS, given the delayed restructuring.download