Capitulo III: Marco Teorico
3.1. La Calidad de Vida Laboral, Una Opción Que Favorece Las Condiciones De Los
3.1.3 Calidad de Vida Laboral una apuesta integradora
Growth must surpass a certain threshold before employment starts to rise and unemployment starts to decline. These threshold values can only serve to a limited extent as economic policy indicators, however. They do not constitute a constant measure, as they change over the long term – due to technological progress and developments in the institutional framework on the labour market – as well as over the business cycle.
These thresholds are determined for Austria based on time series and a regression analysis. The employment threshold is defined as that rate of economic growth that is necessary to keep employment (or the volume of labour) constant. Analogously, the unemployment threshold refers to the critical growth rate at which the unemployment rate remains unchanged. This concept is very popular, but also controversial because thresholds are not fixed measures, but fluctuate over time. In the course of the business cycle, they vary over the short term with the degree of capacity utilisation. At rising capacity utilisation, productivity increases, raising the employment threshold. In times of recession, the employment threshold is much lower. Long-term structural changes in the economy (e.g., sectoral structural changes or a change in capital intensity) may lead to systemic changes in employment thresholds. Critics of the concept furthermore point out that the threshold values could be lowered by a flexibility of the labour market (or by shortening working hours). Therefore, past developments are hardly indicative of future trends.
The empirical determination of the employment threshold is based on
Verdoorn’s Law, which establishes a linear relationship between productivity and economic growth5. Employment is able to rise in an economy only if overall
economic production increases at a faster rate than labour productivity. Here, it is calculated as the growth of real GDP per person in active dependent employment and supplies a guideline for the employment threshold. The steep increase in employment since 2000 has slowed the pace of labour productivity over the time series. The rise in active dependent employment was influenced strongly by the increase in part-time employment. For this reason, a conversion of labour productivity into full-time equivalents is more indicative. The time series show that the increase in productivity is subject to cyclical, seasonal and irregular fluctuations. In order to derive information for the determination of the employment threshold, a filter was used to eliminate all high frequency fluctuations from the times series and a smooth non-linear trend was defined. The setting usually applied for quarterly values (λ = 1600) is selected for the HP filter so as to remove all oscillations with a duration of less than 32 quarters.
This time series analysis for Austria results in a relatively stable medium- term employment threshold measured in full-time equivalents of almost 2 per cent. This level applies to periods of economic growth of a solid 2 per cent. (At a growth trend of 3 per cent or 1 per cent, the threshold value is accordingly higher or lower.) As a consequence of the steep rise in part-time employment, the threshold for employment (not converted into full-time) is
5 Verdoorn’s Law states that productivity growth depends linearly on economic growth. The increase in productivity results from the difference in the growth rates of production and employment. Thus, a linear relationship exists between economic and employment growth. This can be analysed by applying the regression approach in order to make a statement on the threshold value. However, the law requires production growth to correspond to that of capital.
substantially lower (around 1½ per cent). However, this level is of minor relevance, because it has little to do with labour volumes.
Additionally, the employment threshold for the period investigated from 1995 to 2005 was also determined using a regression model. The average GDP growth rate was 2.2 per cent during this period. This approach yields a similar result as the time series analysed above at a growth trend of around 2 per cent. A least square regression analysis was conducted to estimate the change in active dependent employment (in full-time equivalents) in response to economic growth and a constant. To obtain the employment threshold from the results of the estimates, the rise in employment is set to zero and the threshold value results from the ratio of the coefficients -α/β with 1.9. However, a R2 of 0.4 indicates the small explanatory content of the exogenous
variables.
The two methods result in an employment threshold of almost 2 per cent in full-time equivalents. This applies to an economic growth rate of a solid 2 per cent over the medium term. At this growth rate, the unemployment threshold in Austria is almost 2.5 per cent over the medium term. It is composed of the employment threshold and the increase in the supply of labour, which has been around ½ per cent in the past few years.
In conclusion it is possible to calculate stable figures for the employment threshold for the short to medium term for Austria. It is around 2 per cent (full-time equivalent). For economic policy considerations, it is important to recognise that the employment threshold follows the productivity growth of labour. Rising productivity is generally viewed as an important driver of higher economic growth and the aim is to support productivity. However, at the same time this means that it will become more difficult to turn higher growth into employment.
Table 5: Employment and unemployment thresholds for Austria per cent
Employment threshold1 Employment threshold1 (full-time equivalent) Unemployment threshold1 Real GDP growth 1995-2000 2.1 2.3 2.5 2.6 2000-2005 1.4 1.8 2.2 1.8 1995-2005 1.7 2.0 2.4 2.2
Source: WIFO calculations.
1At a real GDP growth of … per cent employment starts to increase and unemployment to
decline.
U
nemployment rates of unskilled and low-wage workers have been high in many Euro area countries. Therefore, special strategies were developed to reduce unemployment of these groups. In a nutshell most continental countries primarily tried to reduce the firms' labour costs for low-wage jobs (e.g. by cuts in social security contributions, One-Euro-jobs etc.). The Anglo- American countries gave the unemployed an incentive to work (through earned income tax credits), and the Scandinavian countries successfully implemented activation strategies on the principle of mutual obligations (case management etc.).3.
Low-wage
Sector Strategies
There is another long-run option to reduce the number of unskilled unemployed which is not given adequate attention by policy makers: investing in human capital by keeping children in the educational system so that they can complete high school and preferably go on to third level. While this cannot address the problem of unemployment in the short run, it will better match demand and supply in the long run. In a world where skills are becoming increasingly important, educational systems play an essential role in equalising and raising opportunities (OECD, 2007).