The Employment Intensity of Growth in Europe

The paper elaborates on the employment intensity of growth. Previous evidence regarding this question is surveyed. Empirical results concerning Europe and selected other industrial countries reveal that the cyclical link between unemployment and growth is still stable in the nineties. However, the relation strongly depends on the variable chosen to represent the labor market situation. Test on an asymmetric relation leads to ambitious results. Cross-country and panel evidence suggest that the employment intensity of growth is influenced by the country's wage setting process, the share of the service sector, and labor market flexibility. A clear-cut importance of exchange rate volatility cannot be found. Some conclusions with regard to economic policy are drawn.