sting that about 25% of the productivity decline is due to the increase in employment.
In summary, and recalling that the overall slowdown in average annual productivity growth has amounted to about one percentage point, it emerges as a fairly robust result that only some 20% of this reduction can be attributed to the dynamic response of productivity to positive structural shocks in the labour market.
3. Conclusions
In a nutshell, the analysis in this paper dismisses the notion of a genuine trade-off between employment and productivity growth. Obviously, misguided policies to exploit such a trade-off have to be avoided. However, there are no reasons to think that structural labour market reforms boosting employment will typically entail negative implications for longer-term productivity growth. In particular, this paper reaches the following conclusions:
• The negative relationship between productivity and employment in comparative-static considerations should not be interpreted as a genuine trade-off.
• However, all else equal, a move towards full employment is likely to see a widening of the labour productivity gap between Europe and the US.
• The dynamic response of productivity to positive labour supply and wage shocks may entail a temporary reduction in productivity growth rates, which, in principle could be considered as benign; in any case, the size of a negative effect of this type is estimated to be fairly small.
• The increase in employment since the mid 90s has indeed been to a significant extent the result of such positive labour market shocks, with about one half of the additional jobs attributed to structural improvements.
• Positive employment shocks can only account for a very small fraction of the observed productivity slowdown; consequently, the decline of labour productivity growth must be considered as predominantly caused by other factors and probably not just a temporary phenomenon. Indeed, a cyclical pick-up in labour productivity growth after the recent period of weak output growth should not divert attention from the "Deeper" structural problem of a slowdown in trend productivity growth. p> The implications of the above findings for the Lisbon strategy are straightforward: Indeed, "the more jobs the better "may serve as a simple catch-phrase characterising the principal goal of labour market reform efforts since there is no genuine trade-off - in the sense of a difficult decision to be made - between policies to raise the employment rate and policies to foster productivity growth. Of course, misguided policies attempting to exploit such a trade-off have to be avoided - if, for example, policy-makers promoted sectors with low productivity growth prospects, if they introduced unnecessary regulations leading to "over manning ", if they discouraged young people from pursuing further education, or if they used funds for public...
