Transcript Alex Bryson Productivity Puzzle in Europe

Productivity Puzzles in Europe: A
Comparison of the UK, France,
Germany and Spain
Alex Bryson and John Forth
NIESR (London)
Philippe Askenazy
PSE (Paris)
11th November 2014
NIESR
What’s the Issue?
• The Great Recession
– A big hit to the global economy
– Affected most nations (few exceptions eg Australia
and.....SPAIN)
• Yet much heterogeneity in Europe
– Size of GDP shock
– Impact on firms
– Muted impact on the labour market
• So what’s going on?
– How can we explain this?
First Findings from A New Study
• Labour Productivity Puzzles in Europe (OUP
forthcoming)
• Askenazy, Bellman, Bryson, Chevalier, Erhel,
Forth, Gerner, Hospido, Laible, & Moreno-Galbis
• UK, Germany, Spain, France
– 60% EU GDP
– Contrasting cases
– Similarities and differences
Structure of Presentation
• Overview of Productivity Trends
• What lies behind these trends?
– Country specific narratives
• Special focus on UK for this audience
• Policy implications
• Future
Productivity Trends
GDP per hour relative to UK
Index within year (UK = 100)
150
140
130
120
110
100
90
80
70
60
UK
FR
DE
2002
2007
ES
EU
USA
2013
Source: OECD
Growth in GDP per hour
Average annual growth (%)
3.0
2.5
2.0
1.5
1.0
0.5
0.0
-0.5
UK
FR
DE
ES
EU
USA
-1.0
2002-7
2008-10
2011-13
Source: OECD
Growth in GDP and hours worked
Average annual growth (%)
4.0%
3.0%
2.0%
1.0%
0.0%
-1.0%
-2.0%
GDP
Hours
UK
GDP
Hours
GDP
FR
Hours
DE
GDP
Hours
ES
-3.0%
-4.0%
2002-7
2007-10
Source: OECD
Puzzling Labour Market Response - Harmonized unemployment rate 1992-2013
What lies behind these trends?
• In general, less attention given to the question
in FR, DE and ES, compared with UK
• But specific narratives emerge in each country
– Labour market reforms
– Government policy responses
– Sectoral heterogeneity
Spain
Spain
• Pre-recession productivity was depressed by the
large share of short-term contracts and the
construction sector
• Productivity revival due to large composition effects:
•
Decline in Construction
•
Restrictions on temporary contracts
• But also some new exporting firms more productive
• And a reform in 2010 allows more firm-level
bargaining, giving wage flexibility
• => probably a permanent gain
Decline in construction (% of GDP)
Decline in temporary contracts
Share of fixed-term contracts
France and Germany
Germany
• Recession restricted to manufacturing sector
• Especially exports
• Favourable conditions pre-crisis:
• Wage and employment moderation
• Labour market reforms
• Scarcity of skilled labour
• Government interventions
• Short-time working and bail-out packages
• Within-firm flexibility
• Working time accounts
• Employment and competitiveness pacts
France
• No significant compositional / cleansing effect (so
within firms)
• Slow down in real wage growth, but not on a par
with UK
• Capital investment and R&D spending stable
• Key factors:
• Labour market reform leads to creation of lowproductivity jobs (temporary, self-employed)
• Hoarding of high-skilled labour [???]
• Lower returns to HPW practices
France Half Way Between
UK and Germany?
• A productivity shock but signs of a return to
trend in FR and DE (but not UK)
• Employment holding up in FR, but not as well
as in the UK and DE
• The real wage growth story is DIFFERENT
– UK and DE have experienced very big wage
adjustments, unlike FR
Average real FTE wage (2008=100)
Average real FTE wages
106
104
102
100
98
96
94
92
90
88
86
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
UK
FR
DE
Source: OECD
The Policy Response
• France a bit like Germany
– Building flexibility into a “rigid” system with high
protections
• Seems to “matter”
– Changing nature of workforce
• Self-employed
• Very short-term contracts
• Implications for productivity remain unclear
– If bad for productivity, why have them?
• Cheap can be profitable even without productivity
UK
Historically slow recovery in GDP
Accompanied by unusually high
levels of employment
Discussions have been about.....
• Measurement error
– Output, capital stock; intangibles; estimating counterfactual
•
•
•
•
The role of the Banking Sector (direct, indirect)
Whether there has been a ‘cleansing’ effect
Incentives to innovate (conflicting hypotheses)
Labour Hoarding
– If so why, and how? And to what end?
• The Flexible labour market
– Strong labour supply, falling real wages
• Capital shallowing
No strong cleansing effect
• Temporary spike in liquidations and redundancies, but %
loss making firms rose (Barnett et al)
• Although no strong role for bank forbearance
• Growth in productivity variance across sectors (Barnett et
al, Field and Franklin)
• Chief contributor to falling productivity is within sector and
within firm (Riley et al; Barnett et al)
• WERS: Increase in propensity of poor performers to die
2004-11 c.f. benign 1998-2004, but rate of workplace
closure no different to 1998-2004 (van Wanrooy et al)
Figure 4 Decomposition of labour productivity growth into within and between firm
The Workplace Employment Relations Survey
• National survey mapping employment relations in workplaces
across Britain.
• Unique and comprehensive: data collected from managers,
worker representatives and employees in 2,700 workplaces
with 5+ employees.
• Well-established: 1980, 1984, 1990, 1998, 2004, 2011
• Linked employer-employee:
• 2004 and 2011 cross-sections
• 2004-2011 Panel
Incentives to Innovate?
• Opportunity costs v uncertainty
• Decline in product and process innovation in firms,
though real R&D expenditure constant (ONS; Barnett
et al). Can account for 1pp of productivity shortfall
2008-12 (Barnett et al).
• WERS: Continuing work reorganization (van Wanrooy
et al) - similar to early 90s (Geroski and Gregg)
• Innovation rates not linked to impact of recession, but
returns to innovation in terms of productivity and
‘coming out stronger’
• Some continued growth in HRM investments. Some
(weak) evidence of lower financial returns, but less
change than seen in France.
Labour hoarding?
• Labour retention in the face of declining demand: % firms
with falling output but constant employment doubled in
recession (Barnett et al). Also apparent in WERS:
2004-11, at least 10 employees:
1998-2004, at least 10 employees:
Shrunk by at
least 20%
25
No
Change
40
Grew by at
least 20%
34
24
42
34
• Hoarding’ unrealistic, but labour more attractive:
– Rise in capital costs due to bank reluctance to lend (Broadbent)
– Real hourly labour costs static between 2008 and 2013. Only 4 EU
countries with falling labour costs over that period
What Lies Behind Falling Real Wages
• Union bargaining power?
–
–
–
–
No correlation between freezes/cuts and unionisation
No correlation between pay freeze in last settlement and unionisation
Little change in union wage premium (some counter-cyclicality)
Hard to identify break point in union power
• May have been some time ago?
• Welfare reform
– Those using public job placement service and those drawing on
unemployed for recruits no more likely to freeze/cut pay
• Immigration
– 1 percentage point in the number of non-EEA nationals employed at a
workplace raised the probability of a wage freeze or cut by roughly 0.4
of a percentage point
– % non-UK EEA nationals was not significant
Flexible labour market?
• Growth in non-standard (low-productivity?) jobs
– Part-time, temporary, self-employment; often involuntary;
Blanchflower underemployment index
• WERS: Greater use of numerical flexibility in 2011
than 2004
– Up from 50% to 65% of workplaces
– But not associated with managerial perceptions of how adversely
workplace affected by recession nor with HR manager perceptions
of how workplace had emerged from recession
Fall in capital-labour ratio
• By end 2013 8% lower than counterfactual in
absence of recession, accounting for 2.5pp of
productivity shortfall (Bennett et al)
• Pessoa and Van Reenen say accounts for 2/3 decline
in labour productivity, with hours decline also
important but TFP minor
Future
• Employment/output recently reached pre-recession peak
• Real wage growth remains illusive
• Reforms suggest long-term prospects good (Aghion et al)
– Deregulation of capital flows; Higher Education; Welfare system; Labour law
• Permanent loss?
– Barnett et al argue reduced investment in capital and
impaired resource reallocation account for 6-9pp of 16pp
shortfall in labour productivity
– UK productive capacity 2/3 its pre-recession rate (Ball)
• Similar to France, smaller than Spain, larger than Germany
• TFP
– Barnett et al.: accounts for much of underutilisation and
misallocation
– Pessoa and Van Reenen: no structural break
Productivity Puzzles in Europe: A
Comparison of the UK, France,
Germany and Spain
Alex Bryson and John Forth
NIESR (London)
Philippe Askenazy
PSE (Paris)
11th November 2014
NIESR