Does employment aect productivity

We investigate the trade-obetween employment and labour productivity in a panel of OECD countries in 1970-2003. The endogeneity of employment is shown to matter crucially for assessing its eect on productivity. Estimating a structural model with 3SLS, where employment depends on demographic variables and labour market institutions, we …nd that employment tends to boost productivity. Literature ignoring the endogeneity of employment, including our own OLS results, incorrectly …nds a negative or insigni…cant eect from employment on productivity. The productivity gain is, however, not a guaranteed by-product of additional employment, as regressions with rolling windows reveal.