in terms of employment growth<sup>1314</sup> The relationship between growth and employment varied substantially among the countries‐ confirming the presence of large structural differences. Table 1 shows the elasticity of employment creation with respect to GDP growth for the pre‐crisis period. Spain and Ireland, with their fast expanding private sectors, stand out. Spain’s labor intensive growth is remarkable: the unemployment rate fell even as the population, and labor force participation and employment rates were growing.<sup>15</sup> Ireland’s performance was also quite remarkable – it had an even faster population growth rate, a remarkable increase of 5 pp in the LFP rate, and an increase in the employment rate. Greece had relatively poor labor market performance‐ particularly given that its GDP growth rate was the second highest. Portugal had a very low GDP growth rate, but also exhibits no significant relationship between GDP and employment growth. Portugal’s slow brewing crisis was clearly visible in the labor market long before 2007 as its UE rate increased by 4pp _before_ the sovereign debt crisis.<sup>1617</sup>

**Table 1: Relationship between Employment and GDP, 2000‐2008 Period**

|||2000‐200<br>|8 Period<br>|<br>|
|---|---|---|---|---|
|Dep. Var:|GRC_<br>Empl.|IRE_<br>Empl.|PRT_<br>Empl.|ESP_<br>Empl.|
|GRC_GDP|0.39***<br>(0.00)||||
|IRE_GDP||0.64***<br>(0.00)|||
|PRT_GDP|||‐ 0.01<br>(0.85)||
|ESP_GDP||||0.92***<br>(0.00)|
|Constant|4.18***|0.83***|8.63***|‐1.52***|
||(0.00)|(0.00)|(0.00)|(0.01)|
|# of obs.|32|36|36|36|
|R‐squared|0.88|0.94|0.85|0.91|
|Prob>F|0.00|0.00|0.00|0.00|

Simple OLS model. Robust p‐values in parentheses, and significance at the 1% (***), 5% (**), and 10% (*) levels indicated. GDP: log of quarterly GDP, chain linked values (2010), million Euro, Eurostat._Empl. : log of quarterly total employment, thousands of people, Eurostat.

Juxtaposing the evolution of labor compensation against the type of products exported by each country gives a broader picture of how structural differences and competitiveness evolved relative to the others and thus how recovery may have been affected. On the presumption that more complex products use more skilled (and thus more expensive) labor and/or more capital, higher labor compensation would tend to be associated with these products. Hidalgo and Hausmann (2009) divide products into 6 groups, with group 1 denoting the most complex products (Table 2). Using their ranking, for the period 2001‐07, almost 40% of Germany’s exports are in group 1 and only 3.4% in group 6.<sup>18</sup> It is also the most diversified

> 13 See Felipe and Kumar (2011) also for a discussion on average labor costs rising faster than labor productivity during 1995‐ 2007 in Greece and Portugal. The highest increase in labor productivity was in Ireland.

> 14 During this period Germany’s average and unit labor costs fell.

> 15 However, _employment rates_ were still very low in Spain (and still are), being second only to that of Greece.

> 16 The unemployment rate declined in both Greece and Spain, with Spain’s decline being almost 6pp between 2000 and 2007 and Greece’s about 3pp.

> 17 Despite the differing dynamics, Greece, Portugal and Spain had similar UE rates on the eve of the crisis – around 8%. Ireland, with its flexible labor market, had 4.7%.

> 18 Germany has second place in terms of complexity, following Japan.

9