Employment-GDP Elasticity in Argentina during 2004-2014

Abstract

After the last economic crisis of 2001-2002, Argentina's economy showed significant signs of recovery, with average GDP growth rates of 9%. Similarly, there was a complete reversal of the 90s' negative trend in employment rate. a complete reversal of the negative trends in the employment rate during the nineties was verified.The objective of this paper is to estimate the employment-GDP elasticity in Argentina during the period 2004-2014, using a vector model with error correction mechanism for GDP, employment and average working hours per week. The results suggest the existence of a long-run relationship between employment and GDP, with an employment-GDP elasticity of 0.29. However, the estimation rejects the hypothesis of a short-run relationship between both variables. Indeed, it appears that in a cyclical shock on GDP, employment remains inelastic, while the number of working hours is the adjustment variable. This result shows that firms find it more efficient to make adjustments in the amount of working hours during economic cycles instead of reorganizing the combination of productive factors.