Productivity, employment and human capital in Eastern and Western EU countries

This chapter analyses some features of the economic performances in EU-27 members, especially highlighting the peculiarities of transition countries. In particular, the focus is on employment rate and productivity levels and dynamics (since 1990), on the trade-off between employment growth and productivity growth; and, lastly, on the main determinants of the productivity differences between countries, with a special consideration for human capital. After a partial review of the theoretical and empirical literature, a preliminary ‘descriptive’ analysis allows to detect different ‘models’ of economic growth (extensive, intensive, virtuous or stagnant) during the post-1989 period. In the econometric investigations (cross section and panel analyses), the authors try to explain the differences between countries in the levels of labour productivity (especially for the post-2000 period), by considering differences in the human capital level as well as in some other explanatory variables (R&D, competitiveness, the progress in transition, some structural indicators and synthetic indices of specialisation, the extent of the ‘shadow economy’ and, at last, the employment rates). The institutional proxy turns out to be particularly significant in the case of transition countries. As to the typologies of growth, the two blocs (East and West) moved in opposite directions: from an ‘extensive’ model to an ‘intensive’ one in the Eastern countries, from ‘intensive’ to ‘extensive’ in many Western countries. The policy implication, on this point, strictly reminds the EU Lisbon’s goal to achieve ‘more and better’ jobs. Finally, the econometric results concerning the education variable place human capital as a key factor of productivity differences and emphasize the peculiar conditions of transition countries.