Transcript Pieces of the EU/US Productivity Puzzle

Is there a productivity puzzle?
A comparison of the EU and the US
Presentation for Brussels Economic Forum 2003
Bart van Ark
University of Groningen
and The Conference Board Europe
Brussels, 10 April 2003
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Order from http://www.conference-board.org
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Productivity trends in OECD have
diverged since the mid 1990s ...
Contribution of Labor Productivity and Total Hours Worked to GDP Growth
3.00%
1990-1995
1995-2002
European Union
Annual Percent Growth in Labor
Productivity
2.50%
All OECD
2.00%
Japan
USA
1.50%
1.00%
-1.50%
-1.00%
3% GDP
Growth
2% GDP
Growth
1% GDP
Growth
0.50%
0.00%
-0.50%
0.00%
4% GDP
Growth
0.50%
1.00%
1.50%
Annual Percent Growth in Hours Worked
2.00%
2.50%
3.00%
Source: GGDC, TCB
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… and this divergence process has
continued through the recent slowdown
United
States
European
Union Japan
New OECD Rest of
Membersa OECDb
Labour Productivity Growth (annual average, percent)
1995-2000
2000-2002
2001
2002
2.0
1.6
1.4
0.9
2.3
0.3
3.6
2.3
3.0
2.0
0.4
2.8
1.3
0.5
-0.1
0.7
2.5
2.2
2.0
1.9
Labour Hours Growth
1995-2000
2000-2002
2.0
-0.3
1.2
0.4
-0.9
-1.0
1.0
0.0
1.2
0.0
2001
2002
-0.1
-0.5
0.3
0.5
-0.5
-1.4
-0.8
0.9
-1.2
1.1
a) Australia, Canada, New Zealand, Norway, Switzerland and Turkey
b) Czech Republic, Hungary, Poland, Mexico and South Korea
Source: Groningen Growth and Development Centre and The Conference Board Europe
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Has Europe been pushed on a slow
productivity growth track?
Output per Hour (1999 US$)
40
38
36
34
EU
USA
32
30
28
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Source: Groningen Growth and Development Centre and The Conference Board Europe
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Less working hours and lower
employment intensity has eroded EU
income level
GDP per
As a
Effect of
hour
percent
working
employment/
GDP per
percent
of U.S.* Rank
hours (a)
population
capita
of U.S.*
worked
Effect of
As a
Rank
ratio (b)
U.S.
38.83
100.0%
1
0.0%
0.0%
34,076
100.0%
1
EU
35.58
91.6%
2
-14.5%
-5.5%
24,428
71.7%
3
Japan
28.37
73.1%
3
-3.8%
4.5%
25,128
73.7%
2
Rest of OECD 23.73
61.1%
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-2.5%
-9.3%
16,782
49.2%
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New OECD 14.02
36.1%
5
4.7%
-8.8%
10,931
32.1%
5
Source: Groningen Growth and Development Centre and The Conference Board Europe
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Higher participation offset by lower
productivity and less working hours
European Union: Sources of Income Gap Relative to United States
(1990-2002)
35%
30%
25%
Effect of
W orking
Hours
20%
Effect of
Employment/
Population
Ratio
15%
Effect of
Productivity
10%
5%
0%
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
Source: Groningen Growth and Development Centre and The Conference Board Europe
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Substantial variation between EU
member states, but more for
productivity than income gaps
Productivity and Per Capita Income Gaps, 2002 (US=100)
120.0
US=100
100.0
80.0
60.0
40.0
20.0
0.0
BE FR IR NL DE DK AU IT FI SW UK ES GR PT
GDP per hour worked
GDP per capita
Source: Groningen Growth and Development Centre and The Conference Board Europe
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Pieces of the Puzzle
 Information and Communication Technology is
only part of the problem
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Three major channels by which ICT impacts
productivity growth
 CHANNEL 1: The effect of ICT investment on
labour productivity growth through capital deepening
or substitution
 CHANNEL 2: The effect of rapid technical progress
in the ICT producing industry on total factor
productivity growth
 CHANNEL 3: The effect of economy-wide use of
ICT on total factor productivity growth through
creating knowledge spillovers
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ICT contributed positively to European
productivity growth, but other factors
caused slowdown
3.00
Average annual labour productivity growth (%)
2.50
2.00
1.50
1.00
0.50
0.00
EU 1990-1995
EU 1995-2000
IT capital deepening
Non-IT capital deepening
Source: Groningen Growth and Development Centre and CEPII
US 1990-1995
IT-Productivity
US 1995-2000
Non-IT Productivity
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Pieces of the EU/US Productivity Puzzle
 Information and Communication Technology is only
part of the problem
 The slowdown in nominal wage growth has altered
lowered the price of labour relative to capital in
Europe more than in U.S.
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EU nominal wage growth fell behind
U.S. growth during second half of 1990s
12.0%
9.0%
6.0%
3.0%
0.0%
1985
1987
1989
1991
1993
EU
1995
1997
1999
2001
US
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France followed EU trend in nominal
wages
12.0%
9.0%
6.0%
3.0%
0.0%
1985
1987
1989
1991
1993
EU
1995
1997
1999
2001
France
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Germany showed acceleration in
nominal wage growth in late 1990s
12.0%
9.0%
6.0%
3.0%
0.0%
1985
1987
1989
1991
EU
1993
1995
1997
1999
2001
Germany
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UK nominal wage growth was more like
U.S. pattern
12.0%
9.0%
6.0%
3.0%
0.0%
1985
1987
1989
1991
1993
UK
1995
1997
1999
2001
US
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Pieces of the EU/US Productivity Puzzle
 Information and Communication Technology is only
part of the problem
 The slowdown in nominal wage growth has altered
lowered the price of labour relative to capital in
Europe more than in U.S.
 The innovation and investment climate in Europe is
insufficiently focused on ICT diffusion and use
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Differences in ICT-using services drive the
EU/U.S. productivity differential
Productivity growth and GDP shares of ICT-producing, ICT-using and non-ICT
industries in the EU and the U.S.
Productivity growth
GDP share
1995-2000
2000
EUb
1.4
US
2.5
EUb
100.0
US
100.0
ICT Producing Industries
ICT Producing Manufacturing
ICT Producing Services
9.0
14.9
6.5
10.4
24.6
1.8
5.9
1.6
4.3
7.3
2.6
4.7
ICT Using Industriesa
ICT Using Manufacturing
ICT Using Services
1.5
2.0
1.4
4.7
0.9
5.4
27.0
5.9
21.1
30.6
4.3
26.3
Total Economy
Non-ICT Industries
0.7
0.5
67.1
62.1
Non-ICT Manufacturing
1.5
1.4
11.9
9.3
Non-ICT Services
0.2
0.4
44.7
43.0
Non-ICT Other
1.9
0.6
10.5
9.8
a) excluding ICT producing
b) EU includes Austria, Denmark, Finland, France, Germany, Ireland, Italy, Netherlands,
Spain, Sweden and the United Kingdom, which represents over 90% of EU GDP.
Notes: Productivity is defined as value added per person employed
Source: Groningen Growth and Development Centre and The Conference Board Europe
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Pieces of the EU/US Productivity Puzzle
 Information and Communication Technology is only
part of the problem
 The slowdown in nominal wage growth has altered
lowered the price of labour relative to capital in
Europe more than in U.S.
 The innovation and investment climate in Europe is
insufficiently focused on ICT diffusion and use
 Reforms in labour, product and capital markets in
Europe have come late, are fragmented and often not
rigorously pursued
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A Productivity Agenda for the EU?
 A balanced labour market policy provides incentives to
put in more work as well as continuously seek
opportunities to improve skills
 “Smart” regulations drive innovation but also take care
of market structures
 The key to technology use is an innovation
environment with strong relations between business,
public and private research
 Exploit Europe’s economic diversity as an engine of
growth
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