European Commission, DG ECFIN Mary Veronica Tovšak Pleterski NTTS 2017 Satellite event Challenges in measuring productivity, growth and intangibles … Europe's growth and productivity issues: A view from the European Commission European Commission, DG ECFIN Mary Veronica Tovšak Pleterski Brussels, 17 March 2017

Productivity and growth Economic growth is closely related with growth in living standards Output growth has traditionally been attributed to the accumulation of human and physical capital and the increase in productivity arising from technological innovation In the light of limited natural resources, an aging overall population and sluggish investments in Europe, productivity growth becomes ever more important However, although some substantial technological progress (e.g. due to IT revolution and the emergence of a duly knowledge-based economy), we widely observe a deceleration of productivity growth across most of the industrialized countries…

Chart: Labour- and total factor- productivity (TFP) growth, EU-15, EU-27 and US [trend; 1980-2016] Labour productivity growth – potential TFP growth - trend Source: Own calculations by DG ECFIN based on AMECO data Notes: Potential labour productivity is based on output per hour worked; growth rates are percent changes; the TFP trend was calculated on the basis of Kalman filter; the EU-27 average refers to the EU members states excluding Croatia

Possible explanations reduced ability of some of the advanced economies to benefit from technological advances, i.e. problems in terms of technological diffusion (e.g. OECD) technological innovation has become marginally less important (e.g. Gordon) TFP slowdown owes more to a declining efficiency in combining factors of production than to a diminishing pace of technological progress (e.g. IMF, WP 15/116) misallocation of resources (esp. capital) which are somehow not being allocated to the "right" (most productive) sectors, thus impeding productivity growth (e.g. Haskel) back to 'normal': recent subdued pace of productivity growth might be merely the return to more normal rates of growth following extraordinary gains from the information technology revolution (e.g. Fernald) Measurement errors / data problems and conceptual issues, e.g. with regard to capturing intangible assets (esp. in the light of the emerging knowledge-economy) … In fact, all points have some merits…

Policy response Europe 2020: Europe's growth Strategy (> smart, sustainable, inclusive growth) Commission's Work Programme: "A New Boost for Jobs, Growth and Investment" (incl. Single Market- and Digital Single Market Strategy) European Semester (many CSRs direct or indirectly aim at stimulating growth) Horizon 2020: 60% budget increase compared to FP7 Juncker Plan / EFSI Innovation Union … Analytical work: At ECFIN we have several ongoing research activities which aim at providing relevant insights and contribute to the debate, for instance with a special focus on investments in intangible assets.

Related analytical work at ECFIN Developments and determinants of trend total factor productivity growth (TFP): Convergence towards the US in trend TFP levels is very weak; some convergence in terms of trend TFP growth rates Ageing workforce, stringent employment protection legislation and skill mismatch (under-qualification), negatively related with trend TFP growth Positively related with trend TFP growth: education (quality and quantity), R&D spending, trade openness and investment in intangible assets Unlocking investment in intangible assets: Including intangibles in source-of-growth framework changes growth pattern: GVA grows more rapidly and capital deepening becomes dominant source of growth TFP variance diminishes when including intangibles, i.e. looking at intangibles improves our understanding of TFP differentials Investment in intangibles likely to be affected by similar barriers and drivers as tangible assets (regulations, public investment, human capital, access to finance); structural factors matter generally more for intangibles whereas cyclical factors matter more for tangibles

Typical data sources and gaps Official statistics National accounts, balance of payments Business statistics Social statistics (LFS, SILC) => Provide high quality offcial data, but gaps for long time series, industry detail and asset-type breakdowns Academic data e.g. EU-KLEMS, WIOD, INTAN/SPINTAN => help to fill data gaps, testing and providing estimates on concepts not yet covered by official statistics (e.g. "new intangibles"), but of relevance for policy making.

Take-away messages Looking at intangibles is needed for a comprehensive understanding of the supply-side components of growth, especially in the light of the emerging knowledge-based economy Complementarities matter: it is not about investing either in certain types of tangible or intangible capital rather than arriving to a well balanced mix of all of them For sound policy-making we need robust data / comprehensive evidence, i.e. work on both the statistical and the analytical fronts are needed. Beyond intangibles, we need further research on the driving forces behind the observed deceleration of productivity growth Eventually we need to rethink the approach towards productivity (measurement) and improve the statistics we are thus relying on…

To be discussed today… Conceptual issues: Is there more than just inappropriate measurement/analytical scope? How can we ultimately explain the observed deceleration of productivity growth? Are there any practical proposals to improve the way we measure productivity and economic growth? Are our existing empirical measures of GDP, productivity, corresponding growth, etc. fit for comprehensively approximating economic activities in times of digitalization and knowledge–economy? What kind of (further) data should we look at and what can be provided by statistics?