Output-Employment Relationship across Sectors: A Long- versus Short-Run Perspective

Sahin, Afsin and Tansel, Aysit and Berument, Hakan (2011): Output-Employment Relationship across Sectors: A Long- versus Short-Run Perspective.

Abstract

This paper investigates the nature of the output-employment relationship by using the Turkish quarterly data for the period from 1988 to 2008. Even if we fail to find a long-run relationship between aggregate output and total employment, there are long-run relationships for the aggregate output with non-agricultural employment and sectoral employment levels for seven of nine sectors that we consider. However, a further investigation for the output and employment relationship within a short-run perspective do not reveal statistically significant relationships for either total employment, or non-agriculture employment or the eight out of the nine sectors that we consider. Thus, it seems that sustainable growth is an essential economic agenda for employment generation concerning the sectors and that there is a long-run link but weak short run link with demand.

• Item Type: MPRA Paper
• Language: English
• Keywords: Output; Employment; Seasonal Cointegration
• Subjects: C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C32 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes ; State Space Models; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E24 - Employment ; Unemployment ; Wages ; Intergenerational Income Distribution ; Aggregate Human Capital ; Aggregate Labor Productivity; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles

References

Akan, Y., Arslan, I., Karatay, P. and Druica, E. (2008). ‘Effects of economic growth on employment in the knowledge society process (1980-2007)’, Buletinul Universităţii Petrol, 3, pp. 23-30.

Akçoraoğlu, A. (2010). ‘Employment, economic growth and labor market performance: The case of Turkey’, Ekonomik Yaklasim, 21, pp. 101-114

Akerlof, G. A. and Shiller, R. J. (2009). Animal Spirits, How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism. Princeton University Press, Princeton.

Ateşoğlu, H. S. (1993). ‘Manufacturing and economic growth in the United States’, Applied Economics, 25, pp. 67–69

Attfield, C. L. F. and Silverstone, B. (1998). ‘Okun’s law, cointegration and gap variables’, Journal of Macroeconomics, 20, pp. 625-37.

Aydıner-Avşar, N. And Onaran, O. (2010). ‘The determinants of employment: A sectoral analysis for Turkey’, The Developing Economies, 48, pp. 203–31

Bailey, M. N. and Lawrence, R. Z. (2004). ‘What happened to the great US job machine? The role of trade and electronic offshoring’, Brookings Papers on Economic Activity, 35, pp. 211-284.

Baltagi, B. H., Baskaya, Y. S. and Hulagu, T. (2012). ‘How different are the wage curves for formal and informal workers? Evidence from Turkey’, Central Bank of the Republic of Turkey, Working Paper, 12, pp. 1-19.

Basu, D. And Foley, D. K. (2011). ‘Dynamics of output and employment in the U.S. economy’, University of Massachusetts Amherst Political Economy Research Institute, Working Paper, 248, pp. 1-37.

Bell, D. (1981). ‘Regional output, employment and unemployment fluctuations’, Oxford Economic Papers, 33, pp. 42-60.

Bent, H. (1991). The Political Economy of Poverty, Equity, and Growth in Egypt and Turkey, World Bank Comparative Study.

Berman, J. and Pfleeger, J. (1997). ‘Which industries are sensitive to business cycles?’, Monthly Labor Review, 120, pp. 19-25.

Bernanke, B. (2003). ‘The jobless recovery’, Global Economic and Investment Outlook Conference, Carnegie Mellon University, Pittsburgh, Pennsylvania, November 6.

Berument, H., Dogan, N. and Tansel, A. (2006). ‘Economic performance and unemployment: Evidence from an emerging economy’, International Journal of Manpower, 27, pp. 604-623.

Berument, H., Dogan, N. and Tansel, A. (2009). ‘Macroeconomic policy and unemployment by economic activity: Evidence from Turkey’, Emerging Markets, Finance and Trade, 45, pp. 21-34.

Bhalotra, S. R. (1998). ‘The puzzle of jobless growth in Indian manufacturing’, Oxford Bulletin of Economics and Statistics, 60, pp. 5-32.

Bhorat, H. and Hodge, J. (1999). ‘Decomposing shifts in labour demand in South Africa’, South African Journal of Economics, 67, pp. 348–380.

Blanchard, O. J. (1989). ‘A traditional interpretation of macroeconomic fluctuations’, American Economic Review, 79, pp. 1146-64.

Brechling, F. P. R. (1965). ‘The relationship between output and employment in British manufacturing industries’, The Review of Economic Studies, 32, pp. 187-216.

Caporale, G. M. and Skare, M. (2011). ‘Short-and-long-run linkages between employment growth, inflation and output growth: Evidence from a large panel’, Brunel University London Economics and Finance Working Paper Series, October, 11, pp. 1-29. 21

Cengiz, S. and Şahin, A. (2011). ‘Unemployment and welfare loss’, (in Turkish), Ekonomi Bilimleri Dergisi, 3, pp. 135-144.

Chenery. H. B. and Syrquin, M. (1975). Patterns of Development, 1950-1970, Oxford University Press, London.

Chletsos, M. and Kollias, C. (1997). ‘The effects of macroeconomic aggregates on employment levels in Greece: A causal analysis’, Labour, 11, pp. 437-448.

Chow, G. C. and Lin, A. L. (1971). ‘Best linear unbiased interpolation, distribution and extrapolation of time series by related series’, Review of Economics and Statistics, 53, pp. 372-375.

Cuaresma, J. C. (2003). ‘Okun’s law revisited’, Oxford Bulletin of Economics and Statistics, 65, pp. 439-452.

Dudu, H. and Çakmak, E. H. (2011). ‘Regional impact of the climate change: A CGE analysis for Turkey’, ERF Working Paper, 644, pp. 1-19.

Dasgupta, S. and Singh, A. (2005). ‘Will service be the engine of Indian economic growth’, Development and Change, 36, pp. 1035-1057.

Echevarria, C. (1997). ‘Changes in sectoral composition associates with economic growth’, International Economic Review, 38, pp. 431–52.

Engle, R. F. and Granger, C. W. J. (1987). ‘Co-integration and error correction: Representation, estimation and testing’, Econometrica, 55, pp. 251-76.

Engle, R. F. and Yoo, B. S. (1987). ‘Forecasting and testing in co-integrated systems’, Journal of Econometrics, 35, pp. 143-59.

Engle, R. F., Granger, C. W. J., Hylleberg, S. and Lee, H. S. (1993). ‘Seasonal cointegration: The Japanese consumption function’, Journal of Econometrics, 55, pp. 275-98.

Fox, L. and Sekkel, M. (2006). ‘Job creation and quality of growth in Africa’, Working Paper, The World Bank, 12, November.

Freeman, D. G. (2000). ‘Regional tests of Okun’s law’, International Advances in Economic Research, 6, pp. 557-570.

Ghysels, E. and Perron, P. (1993). ‘The effect of seasonal adjustment filters on tests for a unit root’, Journal of Econometrics, 55, pp. 57-98

Goodman, W. G. (2001). ‘Employment in services industries affected by recessions and expansions’, Monthly Labor Review, 124, pp. 3-11.

Groshen, E. L. and Potter, S. (2003). ‘Has structural change contributed to a jobless recovery? ’ Current Issues in Economics and Finance, 9, pp. 1–7.

Günçavdı, O., Küçükçiftçi, S. and McKay, A. (2004). ‘Adjustment, stabilization and the analysis of the employment structure in Turkey: An input- output approach’, Economics of Planning, 36, pp. 315-331.

Gürsel, S. and İmamoğlu, Z. (2011). ‘Why is agricultural employment increasing in Turkey?’, Betam Working Paper Series, 4, pp. 1-20.

Hamada, K. and Kurosaka, Y. (1984). ‘The relationship between production and unemployment in Japan: Okun's law in comparative perspective’, European Economic Review, 25, pp. 71–94.

Hamori S. and Tokihisa A. (2001). ‘Seasonal cointegration and the money demand function: Some evidence from Japan’, Applied Economics Letters, 8, pp. 305-310.

Hansen, Alvin (1953). A Guide to Keynes, McGraw- Hill, NewYork.

Hart, R. A. and Sharot, T. (1978). ‘The short-run demand for workers and hours: A recursive model’, The Review of Economic Studies, 45, pp. 299-309.

He, D., Zhang, Z. and Zhang, W. (2009). ‘How large will be the effect of China’s fiscal stimulus package on output and employment?’, Pacific Economic Review, 14, pp. 730-744. 22

Holmes, M. J. and Silverstone, B. (2006). ‘Okun’s law, a symmetries and jobless recoveries in the United States: A markov – switching approach’, Economics Letters, 92, pp. 293-99.

Hylleberg, S., Engle R. F., Granger, C. W. J. and Yoo, B. S. (1990). ‘Seasonal integration and cointegration’, Journal of Econometrics, 44, pp. 215-38.

Ireland, N. J. and Smyth, D. J. (1970). ‘The specification of short-run employment models’, The Review of Economic Studies, 37, pp. 281-285.

Kaufman, R. T. (1988). ‘An international comparison of Okun's law’, Journal of Comparative Economics, 12, pp. 182–203.

Khemraj, T., Madrick, J. and Semmler, W. (2006). ‘Okun’s law and jobless growth’, Schwartz Center for Economic Policy Analysis, 3, pp. 1-10.

Kuznets (1973). ‘Modern economic growth: Findings and reflections’, Nobel Memorial Lecture, December, 1971, American Economic Review, 63, pp. 247-58.

Layard, R., Nickell, S. and Jackman, R. (1991). Unemployment: Macroeconomic Performance and the Labour Market, Oxford University Press, Oxford.

Lewis, W. A. (1954). ‘Economic development with unlimited supplies of labour’, Manchester School Econ.Soc. Stud, 22, pp. 19-191.

Lewis-Wren, S. (1986). ‘An econometric model of U.K. manufacturing employment using survey data on expected output’, Journal of Applied Econometrics, 1, pp. 297-316.

Madden, G. M. and Tuckwell, R. H. (1975). ‘The output - employment relationship in Australian industry’, Economic Record, September, 51, pp. 421-427.

Milas, C. K. (2000). ‘Employment, output and political business cycle effects in the Greek non-tradable sector’, Applied Economics, 32, pp. 123-133.

Moosa, I. A. (1997). ‘A cross - country comparison of Okun’s coefficient’, Journal of Comparative Economics, 24, pp. 335-356.

Morrison, C. J. and Berndt, E. R. (1981). ‘Short-run labor productivity in a dynamic model’, Journal of Econometrics, 16, pp. 339-365.

Nabli, M. K., Jauregi, C. S. and Silva, S. J. (2007). ‘Job creation in a high growth environment: The Mena region’, Middle East and North Africa Working Paper Series, 49, The World Bank.

OECD (2008). Employment Protection Regulation and Labour Market Performance, OECD Employment Outlook.

Okun, A. (1962). ‘Potential GNP: Its measurement and significance’ in American Statisical Association, Proceedings of the Business and Economic Statistics Section, pp. 98-104.

Okun, A. (1970). The Political Economy of Prosperity, New York: Norton.

Palangkaraya, A. and Yong, J. (2011). ‘Trade liberalisation, exit, and output and employment adjustments of Australian manufacturing establishments’, The World Economy, 34, pp. 1-22.

Pehkonen, J. (2000). ‘Employment, unemployment and output growth in booms and recessions: Time series evidence from Finland, 1970-96’, Applied Economics, 32, pp. 885-90.

Pierluigi, B. and Roma, M. (2008). ‘Labour cost and employment across Euro area countries and sectors’, European Central Bank Working Paper Series, 912, pp. 1-41.

Prachowny, M. F. J. (1993). ‘Okun’s law: Theoretical foundations and revised estimates’, Review of Economics and Statistics, 75, pp. 331-36.

Price Waterhouse and Coopers (PWC) (2010). ‘Doing Business in Turkey’, PriceWaterHouseCoopers, October.

Rostow, W. W. (1960). The Stages of Economic Growth: A Non-Communist Manifesto, Cambridge University Press, United States of America.

Sawtelle, B. (2007). ‘Analyzing the link between real GDP and employment: An industry sector approach’, Business Economics, 42, pp. 46-54

Shepherd, D. and Dixon, R. (2008). ‘The cyclical dynamics and volatility of Australian output and employment’, The Economic Record, 84, pp. 34-49.

Sögner, L. and Stiassny, A. (2002). ‘An analysis of the structural stability of Okun’s law: A cross - country study’, Applied Economics Letters, 14, pp. 1775-87.

Sögner, L. (2001). ‘Okun’s law: Does the Austrian unemployment-GDP relationship exhibit structural breaks’, Empirical Economics, 26, pp. 553-64.

Smyth, D. J. (1986). ‘The cyclical response of employment to output changes: United States manufacturing industries, 1948 to 1983’, Applied Economics, 18, pp. 495-500.

Şahin, A. (2008). ‘An investigation on the government intervention in wheat market in Turkey’, Icfai University Journal of Public Finance, 6, pp. 72-78.

Şahin, A., Yılmaz, A. and Arslan, F. (2007). ‘Wheat yield dynamics: A structural econometric approach’, Pakistan Journal of Biological Sciences, 10, pp. 3533-3540.

Tarı, R. and Abasız, T. (2010). ‘Testing Okun’s law using threshold cointegration and vector error correction model under the asymmetric effects: The case of Turkey’, (in Turkish), Iktisat Isletme ve Finans, 25, pp. 53-77

Tatoğlu, F. Y. (2011). ‘The long and short run effects between unemployment and economic growth in Europe’, Dogus Universitesi Dergisi, 12 (1): 99-113

Telli, C., Voyvoda, E. and Yeldan, E. (2006). ‘Modeling general equilibrium for socially responsible macroeconomics: Seeking for the alternatives to fight jobless growth in Turkey’, METU Studies in Development, 33, pp. 255-293.

Tirkayi, A. and Özkan, H. N. (2011). ‘Economic activity and unemployment dynamics in Turkey’, Eskisehir Osmangazi Universitesi IIBF Dergisi, 6, pp. 173‐184

Tregenna, F. (2008). ‘Services to employment creation and growth in South Africa’, South African Journal of Economics, 76, pp. 175-204.

Upender, M. (2011). ‘Differential output elasticity of employment during post-economic reform period in the Indian economy’, The Singapore Economic Review, 56, pp. 189–202.

Verme, P. (2006). ‘Constraints to growth and job creation in low-income commonwealth of independent States countries’, World Bank Policy Research Working Paper, April, 3893.

Villaverde J. and Maza A. (2009). ‘The robustness of Okun’s law in Spain, 1980-2004 regional evidence’, Journal of Policy Modeling, 31, pp. 289-297.

Wah, L. Y. (1997). ‘Employment effects of output and technological progress in Malaysian manufacturing’, Journal of Development Studies, 33, pp. 411-420.

Weber, C. E. (1997). ‘The paper - bill spread and Blanchard’s version of Okun’s law”, Applied Economics Letters, 4, pp. 437-440.

Wilson, G. W. (1960). ‘The relationship between employment and output’, The Review of Economics and Statistics, 42, pp. 37-43.

World Bank (2006). Turkey: Labor Market Study, Report No. 33254.

World Bank (2007). ‘Job creation in an era of high growth’, Middle East and North Africa Region, Economic Development and Prospects, The World Bank.

World Bank (2008). ‘Hashemite Kingdom of Jordan resolving Jordan’s labor market paradox of concurrent economic growth and high unemployment’, World Bank Report, 39201.

Yeldan, E. (2010). ‘Global crisis and Turkey: A macroeconomic assessment of the effects of fiscal stimulus measures on employment and labour markets’: In: Crisis and Turkey: Impact Analysis of Crisis Response Measures, International Labour Organization Office, Ankara, Turkey, pp. 9-40.