The purpose of this paper is to detect the basic factors determining the size of employment
in European Union countries and to identify the nature of adjustment mechanisms operating in the
labour market during the global crisis.
This paper analyses the determinants of employment in the European Union in the years 2005–
2010, and makes an attempt to assess changes in the nature of adjustment processes in the labor
markets observed during the economic crisis of 2007–2010.
On theoretical grounds the main determinants of employment are: the level of GDP, real
wages, working time and the openness of the economy.
Statistical analysis confirmed the existence of a strong relationship between changes
in employment and GDP in the period considered and the possibility of explaining differences
in trends of both economic categories in the EU countries by the differences in the openness
of their economy, differences in the strength of the reaction of real wages, and the differences
in the use of reduced working time.
Econometric analysis based on a panel model for 24 European Union countries has shown that
both the production and real wages were important determinants of employment in EU countries.
During the crisis the phenomenon of labor hoarding was present in a group of countries and the
differences in the performance of adjustment mechanisms were visible among distinguished
groups
