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[ 1 ]
Productivity in Europe. From the expansion to the crisis
Matilde Mas
University of Valencia and Ivie
World KLEMS Conference. Break Out Session: Europe
Harvard, August 20, 2010
[ 2 ]
Industrial Productivity in Europe: Growth and CrisisEditors: Matilde Mas & Robert Stehrer
Edward Elgar Editors
PART I. INTRODUCTION
Mas, M.: “Productivity in the advanced countries. From the expansion to the crisis”
Jorgenson, D.W., Ho Mun S. Samuels, J.D. and K. Stiroh: “Industry Origins of the American Productivity Resurgence”
PART II. COUNTRY CHAPTERS
Hans-Olof Hagén: “Growth in the Nordic business sector”
O´Mahony, M, Nayman, L. Gorning, M. and B. Gorzig: “Productivity transitions in large mature economies: France, Germany and the UK”
Kegels, Ch., Peneder, M. and H. van der Wiel: “Productivity performance in Three Small European countries: Austria, Belgium and the Netherlands”
Havlik, P., Leitner, S. and R. Stehrer: “Growth Resurgence, Productivity Catching-up and Labour Demand in CEECs”.
Mas, M., Milana, C. and L. Serrano: “Spain and Italy: catching up and falling behind. Two different tales of productivity slowdown”
Fukao, K., Miyagawa, T., Hak K. Pyo and K. Hee Rhee: “Estimates of Multifactor productivity, ICT Contributions and Resource reallocation effects in Japan and Korea”
[ 3 ]
Industrial Productivity in Europe: Growth and CrisisEditors: Matilde Mas & Robert Stehrer
Edward Elgar Editors
PART III. SPECIFIC TOPICS
Landesmann, M. Leitner, S. Stehrer, R. and T. Ward: “Skills and industrial competitiveness”
Esposito, P. and R. Stehrer: “Effects of High-Tech Capital, FDI, and Outsourcing on Demand for Skills in West and East”
Kangasniemi, M., Mas, M., Robinson, K. and L. Serrano: “The economic impact of Migration. Productivity Analysis for Spain and the UK”
Van der Wiel, H. Creusen, H. van Leeuwen and E. van der Pijll: “Cross your border and look around”
Hyun Jeong Kim and Hak K. Pyo: “International comparison of Productivity in Market Services: Korea with EU KLEMS Member countries”
Oulton, N. and A. Rincón-Aznar: “Rates of return and alternative measures of capital input: 14 countries and 10 branches, 1971-2005”
Inklaar, R. and M.P. Timmer: “Productivity Convergence Across Industries and Countries: The Importance of Theory-based Measurement”.
[ 4 ]
Productivity in Europe. From the expansion to the crisis
Topics that we deal with in this presentation:
1. Labor productivity from a long run perspective
2. The impact of the economic crisis started in 2007
3. Productivity from an industry's perspective
4. Sources of productivity growth: the relevance of the new information and communication technologies (ICT)
We will compare the EU results with that of the USA and Japan
[ 5 ]
1. Labour productivity from
a long run perspective
[ 6 ]
Labor productivity from a long run perspective
Labour productivity can grow following different patterns:
• The USA followed a virtuous path: strong GVA growth together with employment creation and productivity growth.
• The EU-25 has also followed a positive path, less brilliant however, in terms of GVA and productivity growth.
• The New Member States had a strong GVA and productivity performance but hardly any employment creation.
• Japan also showed a positive rate of productivity growth but originated in employment destruction.
GVA, hours worked and labour productivity. Annual rate of growth. 1995-2009 (percentage)
-2
-1
0
1
2
3
4
1,85 1,71
3,15
2,44
0,700,48 0,57
0,050,51
-1,09
1,371,14
3,10
1,93 1,80
EU-10 USA Japan
GVA Produc-tivity
Hours worked
EU-25
GVA Produc-tivity
Hours worked
GVA Produc-tivity
Hours worked
GVA Produc-tivity
Hours worked
GVA Produc-tivity
Hours worked
EU-15
Source: TCB (2010) and EU KLEMS (2009).
[ 7 ]
Labor productivity from a long run perspective
• The EU-25 is made up of a heterogeneous array of countries
• The New Member States (EU-10) are the ones that have experienced the highest rate of productivity growth.
• In the EU-15 Ireland had the highest rate and Italy the lowest.
Labour productivity. Annual rate of growth. EU-25. 1995-2009 (percentage)
Source: TCB (2010) and EU KLEMS (2009).
EU-15
Irel
and
Gre
ece
Swed
en
Finl
and
Uni
ted
Kin
gdom
Fran
ce
Port
ugal
Ger
man
y
Aus
tria
Net
herlan
ds
Spai
n
Bel
gium
Den
mar
k
Luxe
mbu
rgo
Ital
y
Esto
nia
Latv
ia
Lith
uani
a
Slov
akia
Pola
nd
Eslo
veni
a
Hun
gary
Cze
ch R
epub
lic
Cyp
rus
Mal
ta 0
1
2
3
4
5
6
7
3,03
2,101,80 1,74
1,54 1,43 1,37 1,30 1,281,09
0,84 0,750,30 0,24 0,10
6,34
4,944,64
3,85 3,783,43
3,01
2,46
1,70 1,62
EU-10
[ 8 ]
Labor productivity from a long run perspective
• In the Eurozone-12 unit labor cost had a positive sign which originated in wages growing at higher rates than productivity.
• In the USA unit labor cost growth rates were even higher despite its strong productivity growth, while Japan experienced an improvement in its competitiveness thanks to the slow rate of wages growth.
Unit labour cost. Annual rate of growth, 1995-2009 (percentage)
¹ 1995-2008 for this country.Source: ECB (2010), EU KLEMS (2009) and Fundación BBVA-Ivie.
Eurozone-12 USA Japan¹-2
-1
0
1
2
3
4
5
0,69
1,74
-1,44
1,73
3,67
0,47
1,04
1,93 1,91
Unit labour cost Wages Productivity
[ 9 ]
2. The impact of the crisis
[ 10 ]
The impact of the crisis
• The first 3 years of the crisis hit Japan harder than the EU or the USA
• The contraction in terms of GVA was more intense in the EU-15 than in the USA, while the New Member states maintained a positive growth rate
GVA. Annual rate of growth. 1995-2007 and 2007-2009 (percentage)
Source: TCB (2010) and EU KLEMS (2009).
EU-25 EU-15 EU-10 USA J apan-4
-3
-2
-1
0
1
2
3
4
5
2,44 2,31
3,623,02
1,34
-1,65 -1,87
0,34
-1,05
-3,13
1995-2007 2007-2009
[ 11 ]
The impact of the crisis
• Employment destruction has been very severe in Japan and the USA
• The EU was more in favor of labor hoarding (not in Spain!) with only minor adjustments in the new member states aggregate.
Labour (hours worked). Annual rate of growth. 1995-2007 and 2007-2009 (percentage)
Source: TCB (2010) and EU KLEMS (2009).
EU-25 EU-15 EU-10 USA J apan-4
-3
-2
-1
0
1
2
3
4
5
0,76 0,90
0,10
1,10
-0,72-1,21 -1,41
-0,22
-3,00-3,35
1995-2007 2007-2009
[ 12 ]
The impact of the crisis
• The USA maintained its rate of productivity growth thanks to the intense reaction of its labor market, while in the EU-15 it had a negative growth rate as a consequence of labor maintenance.
• In Japan productivity slowed down in spite of its strong labor contraction
Labour productivity. Annual rate of growth, 1995-2007 and 2007-2009 (percentage)
Source: TCB (2010) and EU KLEMS (2009).
EU-25 EU-15 EU-10 USA Japan-1
0
1
2
3
4
5
1,671,41
3,52
1,93 2,06
-0,43 -0,46
0,57
1,95
0,23
1995-2007 2007-2009
[ 13 ]
Irel
and
Swed
en
Gre
ece
Finl
and
Uni
ted
Kin
gdom
Port
ugal
Ger
man
y
Aus
tria
Fran
ce
Net
herlan
ds
Bel
gium
Luxe
mbo
urg
Den
mar
k
Spai
n
Ital
y
-5
-4
-3
-2
-1
0
1
2
3
4
5
3,56
2,35 2,30 2,281,87 1,75 1,72 1,62 1,62 1,51
1,11 0,990,63 0,54 0,42
-0,15
-1,48
0,92
-1,53
-0,45-0,92
-1,25-0,74
0,34
-1,47 -1,43
-4,29
-1,67
2,63
-1,85
1995-2007 2007-2009
The impact of the crisis
• All the EU-15 countries, with the only exception of Spain, have experienced a slowdown in labor productivity. In Spain its acceleration is due to strong employment destruction.
Labour productivity. Annual rate of growth. EU-15. 1995-2007 and 2007-2009 (percentage)
Source: TCB (2010) and EU KLEMS (2009).
[ 14 ]
The impact of the crisis
• During the first 3 years of the crisis, unit labor cost decelerated in the USA (improving its competitiveness), while it accelerated sharply in Japan and even more in the Eurozone.
Unit labour cost. Annual rate of growth. 1995-2007 and 2007-2009 (percentage)
¹ 2007-2008 for this countrySource: ECB (2010), EU KLEMS (2009) and Eurostat (2010)
Eurozone-12 USA J apan¹-3
-2
-1
0
1
2
3
4
5
0,22
2,10
-1,78
3,50
-0,40
2,60
1995-2007 2007-2009
[ 15 ]
The impact of the crisis
• During the crisis the wages of employed workers rose in all countries.
• In the Eurozone wages increased while productivity decreased, pushing up unit labor cost and thus reducing competitiveness.
• In the USA productivity growth was higher than wages growth, thus unit labor cost decreased.
Unit labour cost. Annual rate of growth. 2007-2009 (percentage)
¹ 2007-2008 for this countrySource: ECB (2010), EU KLEMS (2009) and Eurostat (2010)
Eurozone-12 USA J apan¹-1
0
1
2
3
43,50
-0,40
2,60
3,09
1,55
2,73
-0,41
1,95
0,13
unit labour cost wages productivity
[ 16 ]
3. Aggregate productivity from
the industries perspective
[ 17 ]
Aggregate productivity from the industries perspective
• Manufacturing has contributed positively to labor productivity growth, especially in the EU-10.
• The main difference between EU-15 and USA labor productivity growth is not to be found in Manufacturing but in the Services industries.
• The contribution of the Construction industry was either nil or negative in all groups of countries.
Industries contribution to labour productivity growth. Market Economy. 1995-2007 (percentage)
¹ 1995-2006 for these areas or countriesSource: EU KLEMS (2009).
Agriculture and fishing
Energy
Manufacturing
Construction
Transport and storage and communication
Financial intermediation and business activities
Social and personal services
[ 18 ]
Aggregate productivity from the industries perspective
• The slowdown of productivity in the EU-15 in the 1995-2007 period affected all sectors, being Construction the only one with a negative sign.
• The growth rate of Manufacturing was higher than in Market Services.
• The highest growth rate was shown by the Energy sector, followed by Manufacturing and Agriculture and Fishing.
Labour productivity. Annual rate of growth. EU-15. Market Economy. 1970-1995 and 1995-2007 (percentage)
Source: EU KLEMS (2009) .
Market Economy Agriculture and fishing
Energy Manufacturing Construction Market Services-4
-3
-2
-1
0
1
2
3
4
5
6
2,84
5,294,80
3,48
1,431,911,76
2,71 2,96 2,81
-0,07
1,57
1970-1995 1995-2007
[ 19 ]
4. Sources of productivity growth:
the relevance of new technologies (ICT)
[ 20 ]
Sources of productivity growth…
The higher labor productivity growth in the USA as compared with EU-15ex had a double origin:
•a higher rate of ICT capital deepening and
•a higher rate of growth of technical progress (MFP).
Growth accounting.Labour productivity. Market Economy. 1995-2007(percentage)
¹ The EU-15ex consist of Austria, Belgium, Finland, France, Germany, Italy, Netherlands, Spain and the United Kingdom.² 1995-2006 for this country.Source: EU KLEMS (2009) .
Labour composition
ICT capital deepening per hour worked
Non ICT capital deepening per hour worked
TFP
[ 21 ]
Sources of productivity growth…
The countries belonging to the EU-15 that have experienced higher rates of productivity growth are also the ones showing:
•a higher rate of ICT capital deepening and/or
•a higher rate of growth of technical progress (MFP).
Growth accounting.Labour productivity. Market Economy. 1995-2007(percentage)
¹ The EU-15ex consist of Austria, Belgium, Finland, France, Germany, Italy, Netherlands, Spain and the United Kingdom.² 1995-2006 for this country.Source: EU KLEMS (2009) .
Labour composition
ICT capital deepening per hour worked
Non ICT capital deepening per hour worked
TFP
Irela
nd
Fin
an
d
Sw
ed
en
US
A
Au
stri
a
Fran
ce
Belg
ium
Germ
an
y
Den
mark
Sp
ain
Italy
0
1
2
3
4
5
-1
Neth
erl
an
ds
Un
ited
Kin
gd
om
[ 22 ]
Sources of productivity growth…
• In the EU-15ex, Agriculture, Transport and Storage and Communication, and Manufacturing where the industries showing the highest contribution of MFP.
• On the contrary, the contribution of MFP was negative in Construction, Financial Intermediation and Business Activities, and Social and Personal Services.
Growth accounting.Labour productivity. EU-15ex. Market Economy. 1995-2007(percentage)
¹ The EU-15ex consist of Austria, Belgium, Finland, France, Germany, Italy, Netherlands, Spain and the United Kingdom.Source: EU KLEMS (2009) .
Labour composition
ICT capital deepening per hour worked
Non ICT capital deepening per hour worked
TFP
0
1
2
3
4
-1Market
EconomyAgriculture and fishing
Energy Manufacturing Construction Transport and storage and
communication
Financial intermediation and business
activities
Social and personal services
[ 23 ]
Sources of productivity growth…
• This is an important difference with respect to the USA where all the Services Sectors, including Financial Intermediation and Business Activities as well as Social and Personal Services experienced positive MFP contributions.
Growth accounting. Labour productivity. USA. Market Economy. 1995-2007(percentage)
Source: EU KLEMS (2009) .
Labour composition
ICT capital deepening per hour worked
Non ICT capital deepening per hour worked
TFP 0
2
4
6
-2
-4Market
EconomyAgriculture and fishing
Energy Manufacturing Construction Transport and storage and
communication
Financial intermediation and business
activities
Social and personal services
[ 24 ]
Sources of productivity growth…
Industry classification according to ICT assets
ICT producers ICT non intensive users
Electrical and optical equipment Agriculture, hunting, forestry and fishing
Post and telecommunications Food products, beverages and tobacco
ICT intensive users Textiles, textile products, leather and footwear
Mining and quarrying Wood and products of wood and cork
Pulp, paper, paper products, printing and publishing Rubber and plastics products
Coke, refined petroleum products and nuclear fuel Other non-metallic mineral products
Chemicals and chemical products Basic metals and fabricated metal products
Machinery, nec Construction
Transport equipment Sale, maintenance and repair of motor veh.
Manufacturing nec; recycling Retail trade
Electricity, gas and water supply Hotels and restaurants
Wholesale trade Private households with employed persons
Transport and storage
Financial intermediation
Business activities
Other community, social and personal services
[ 25 ]
Sources of productivity growth…
• The share of ICT producers industries is very small
• In the USA the share of the ICT related sectors (producers and intensive users) have a higher weight than in the other grouping of countries.
Share of each grouping in GVA. Market Economy. 1995 and 2007(percentage)
Source: EU KLEMS (2009) .
0
20
40
60
80
100
ICT producers ICT Intensive users ICT non intensive users
EU-25 EU-15 EU-10 USA Japan1995 2007 1995 2007 1995 2006 1995 2007 1995 2006
[ 26 ]
Sources of productivity growth…
• However, its contribution to productivity growth is much higher than its share in the aggregate.
• Especially in developed economies such as Japan and the USA
Contribution of each sectoral grouping to labour productivity growth. Market Economy, 1995-2007 (percentage)
¹ 1995-2006 for these areas or countries.Source: EU KLEMS (2009) .
ICT producers ICT Intensive users ICT non intensive users
EU-25 EU-15 EU-10¹ USA Japan¹
0
20
40
60
80
100
120
[ 27 ]
Sources of productivity growth…
• The higher productivity growth rate in the ICT producing industries has its origin in its strong MFP growth.
• In the USA, the efficiency improvements have spilled over the ICT intensive sectors, while in the EU-15ex and in Japan the sectors other than ICT producers have benefited only slightly.
Growth accounting. Labour productivity. Market Economy, 1995-2007 (percentage)
A: ICT producers; B: ICT intensive users; C: ICT non intensive users.¹ The EU-15ex consist of Austria, Belgium, Finland, France, Germany, Italy, Netherlands, Spain and the United Kingdom² 1995-2006 for this country.Source: EU KLEMS (2009) .
Labour composition
ICT capital deepening per hour worked
Non ICT capital deepening per hour worked
TFP A B C A B C A B C
0
2
4
6
8
10
-2
UE-15ex
USA Japan¹
[ 28 ]
Conclusions
The set of 25 countries analyzed show very different patterns, as well as strength, of growth.
During the expansion years the USA showed a “virtuous” profile, combining GVA and productivity growth together with employment creation.
The EU-15 had a much modest profile, while the EU-10 benefited from both its initial laggard position and its integration in the EU.
The consequences of the economic crisis
The recent crisis starting in 2007 hit the geographical areas with different intensity. Japan was the country experiencing the highest GVA contraction, followed by the EU-15.
Labor markets also responded different. The USA adjusted sharply to the change of the cycle, while the EU opted for hoarding labor.
As a consequence, the USA maintained its previous productivity growth rate, while in the EU-15 it became negative.
[ 29 ]
Conclusions
Spain was the only EU-15 country that experienced a positive labor productivity acceleration in 2007-2009 originating in its strong employment destruction.
Wages of employed people kept growing during the crisis, pushing up the unit labor cost in the Eurozone and Japan but not in the USA. As a consequence, the USA has gained competitiveness during those years.
The importance of the industry's disaggregation
Manufacturing has been an important source of productivity growth in all countries, especially in the New Member States
However, what makes the difference between the USA and EU are not the Manufacturing industries but the Services Sectors.
Growth in all countries has been driven by ICT capital deepening and MFP growth.
[ 30 ]
Conclusions
In the EU-15 and the USA the MFP growth was especially intense in Agriculture, Manufacturing and Transport and Communication.
However, while in the USA all the Services Sectors showed a positive contribution of MFP in the EU it was strongly negative.
ICT and productivity growth
ICT producing industries have a small share in the aggregate but its contribution to productivity growth is very relevant, especially in the most developed countries.
ICT producing industries have experienced a strong MFP growth in the EU-15ex, USA and Japan.
However, there is an important difference. While in the USA its positive effects spilled over the other sectors of the economy (especially the intensive users), in the UE-15 its positive effects restricted to only the ICT producers.
[ 31 ]
Productivity in Europe. From the expansion to the crisis
Matilde Mas
University of Valencia and Ivie
World KLEMS Conference. Break Out Session: Europe
Harvard, August 20, 2010