Regional total factor productivity and local employment growth: evidence from Korea

This paper examines the effect of regional total factor productivity (TFP) on local employment growth using regional panel data from 2000 to 2014 in Korea. The employment equation derived from the constant elasticity of substitution production function is a function of wage rate, capital stock, and regional TFP. The demand for labor accounts for dynamics since there is a cost to adjusting demand for labor in the long-run. This paper introduces a dynamic panel regression model that considers the effect of lagged employment. TFP is a more appropriate measure of technology than Research and Development (R&D) expenditure or the number of patent applications. This paper measures regional TFP using a growth accounting method as a proxy variable of technology. This paper shows that an increase in regional TFP has a positive effect on local employment growth that is greater in the long-run than in the short-run. This suggests that employment policy such as vocational training adapting to the technological progress for product and process innovations increases labor force productivity in the long-run. © 2017, The Japan Section of the Regional Science Association International.