Tuesday, October 2, 2012

Jobs and Growth: Can’t Have One Without the Other?

Emerging market and developing economies have enjoyed robust growth during the past decade and bounced back quickly from the Great Recession, in marked contrast to the more tepid recovery—and even renewed recession—in advanced economies. Similarly, although unemployment in emerging market and developing economies did go up during the Great Recession, by 2011 it was essentially back to precrisis levels.Is the observed correspondence between jobs and growth a surprise, or does it represent a systemic feature of emerging market and developing economies? In a joint work with Davide Furceri, we show that the short-term relationship between labor market developments and output growth has been fairly strong in many of these economies for the past 30 years. This is particularly the case in many emerging markets. Hence, although the emphasis on structural policies to lower long term unemployment and raise labor force participation remains appropriate, cyclical developments deserve adequate consideration as well. The short term relationship between jobs and growth suggests that macroeconomic policies to maintain aggregate demand also likely play an important role in labor market outcomes in many of these economies.

Preliminary work on Okun’s Law in advanced economies is available here.