This paper formalises the analysis of the employment-productivity trade-off by extending the
framework developed by Gordon (1997) to account for labour heterogeneity. The extent of the trade-off is
determined by the extent of the adjustment of capital to effective labour and by the changes in aggregate
labour quality. The main experiment reported in the paper consists of assessing the labour utilisation and
productivity impacts in OECD countries of aligning group-specific employment rates to the US levels.
Matching the US employment performance defined in that sense would enable low-employment OECD
countries to reduce only half of the aggregate employment-rate gap vis-à-vis the United States, the other
half being mechanically due to differences in the population structure by age and educational attainment.
In this experiment, a 1% gain in employment is associated with a decrease of 0.24% in labour productivity
on average across countries, and of 0.35% in low-employment countries.
