"This paper investigates the time-varying relationship between German output and employment growth, in particular their decoupling in recent years. We estimate a correlated unobserved components model that allows for both persistent and cyclical time variation in the employment impact of GDP as well as an autonomous employment component capturing other factors than real output. As one result, we measure a permanent decline in Verdoorn's coefficient as well as pronounced effects of the autonomous employment component in the recent years. The development of the estimated impact parameters is shown to crucially depend on structural change, but also on labour availability and business expectations."

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