Is there a productivity puzzle

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• 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 ...
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and this divergence process has continued
through the recent slowdown
United European New OECD Rest
of States Union Japan Membersa
OECDb Labour Productivity Growth (annual
average, percent) 1995-2000 2.0 1.4
2.3 3.6 3.0 2000-2002
1.6 0.9 0.3 2.3
2.0 2001 0.4 1.3
-0.1 2.5 2.0
2002 2.8 0.5 0.7 2.2
1.9 Labour Hours Growth
1995-2000 2.0 1.2 -0.9 1.0
1.2 2000-2002 -0.3 0.4 -1.0
0.0 0.0 2001 -0.1
0.3 -0.5
-0.8 -1.2 2002
-0.5 0.5
-1.4 0.9
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?
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
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
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
US100
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
Average annual labour productivity growth ()
Source Groningen Growth and Development Centre
and CEPII
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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
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France followed EU trend in nominal wages
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Germany showed acceleration in nominal wage
growth in late 1990s
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UK nominal wage growth was more like U.S. pattern
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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
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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 Europes economic diversity as an engine
  of growth