Challenges of the Output- Employment Growth Imbalance in Transition Economies

Vladimir Mihajlović, Gordana Marjanović


The trade-off between output and unemployment has become an essential part
of modern macroeconomics and is known as Okun's law. However, in transition
and emerging markets economies' context, the output-employment nexus has a
much more important role as these countries strive to significantly improve the
growth dynamics of both variables. This paper aims to analyze the particularities
of this relationship in selected Central- and South-Eastern European transition
(and former transition) countries to find out a discrepancy between the output
and employment growth. Therefore, the employment elasticity coefficients are
calculated. The estimated results suggest that, in the observed period, economic
growth has not contributed to satisfactory employment growth, which is
commonly referred to as a "jobless growth" hypothesis. Accordingly, this paper
attempts to single out the main challenges of the output-employment growth
misbalance in these countries and propose adequate policy measures that could
reduce it. The industrial policy that differentiates from the "one-size-fits-all"
paradigm is emphasized as the most important part of macroeconomic policy
in transition economies to make their development more balanced. Additionally,
short-run stabilization policy, especially the one focused on the labour market,
has a significant role in these economies.


economic growth, employment elasticity, Okun’s law, labour market, transition economies

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