Growth and employment in Europe

Abstract:

This work looks at the relationship between unemployment levels and economic growth rates. It investigates both the theory and the empirical evidence to provide the reader with a simple graphical tool kit.

The work is organised in two parts preceded by an introduction and overview. Part one, which is comprised of five chapters, addresses the theory. Chapter two illustrates, through a model, the interaction between a monopolistically competitive manufacturing sector and a competitive innovation sector. Chapter three develops a model of inter-sectoral and intra-sectoral structural change, and finds that higher growth rates in the service sector and lower growth rates in the manufacturing sector foster structural change. Chapter four then introduces search frictions, similar to those described in the introduction, into the structural change model of chapter five. Unions are introduced into the growth model in chapter five, which finds that the degree of centralisation of the bargaining structure has a significant impact on economic growth. Chapter six examines the argument that in a growing economy unemployment can be the cause of goods markets failures - albeit of a transitory nature.

Part two addresses the empirical evidence. Chapter seven presents micro econometric evidence for the search model set out in chapter four. Chapter eight applies Granger causality tests for the four largest European countries - France, Italy, Germany and the UK - to test causal relationships between unemployment and economic growth, and assesses which model best fits the data of each country. Chapter nine analyses the dynamics of economic growth and unemployment in the same four major European economies. Chapter ten present the conclusion drawn from the earlier chapters and offers some policy recommendations for the future.

The work will interest scholars, students, practitioners and policy makers engaged in the fields of economics, employment policy, and innovative growth.

Martin Zagler is Associate Professor of Economics at the Vienna University of Economics and Business Administration.