Structural Change, Aggregate Demand and Employment Dynamics in the OECD, 1970-2010

Abstract

The paper combines Baumol’s model of structural change with a model of aggregate demand growth in the Keynesian-Kaleckian tradition to predict the dynamics of aggregate employment. The model for the demand regime is estimated with – and Baumol’s model for the productivity regime is calibrated on – OECD data. The trajectory for employment predicted by the combination of the two models tracks the actual employment dynamics in the OECD over the period 1970-2010 remarkably well.

Keywords: structural change, demand growth, productivity growth, employment dynamics, OECD panel data

JEL Classification: C23, E12, E13, E20, O41