Abstract

Since the Great Recession, Germany almost continuously experiences poor productivity growth. This stands in striking contrast to previous observations and to observations in the US.This project investigates the productivity puzzle in Germany from the perspective of labour demand. The strong increase in employment despite poor economic growth could be the result of 1) a risen impact of GDP on employment, or 2) an overlay of the (less than) usual relationship by other factors determining employment growth. By means of an unobserved components model, we estimate the time-varying relationship between GDP and employment growth, specifically allowing for structural and cyclical determinants of time-variation. On a second stage, we derive potential economic determinants of the filtered time-variation from the search & matching theory and plug them into OLS regressions of the trend and cycle of GDP impact on employment as well as the autonomous cycle.