Productivity or Employment: Is it a choice? Andrea De Michelis Federal Reserve Board Marcello Estevão International Monetary Fund Beth Anne Wilson Federal.

Slides:



Advertisements
Similar presentations
Industry-of-Origin Prices and PPPs:
Advertisements

Doing an Econometric Project Or Q4 on the Exam. Learning Objectives 1.Outline how you go about doing your own econometric project 2.How to answer Q4 on.
Macroeconomics Chapter 111 Inflation, Money Growth, and Interest Rates C h a p t e r 1 1.
Technology Diffusion and Income Inequality: how augmented Kuznets hypothesis could explain ICT diffusion? 30 May 2005 Miguel Torres Preto.
Chapter 10 Simple Regression.
BANCA D’ITALIA E U R O S I S T E M A Trade and Wage Inequality, Mirage or Reality? Gian Maria Tomat New Directions in Welfare July 2011, OECD,
Democracy and Globalization Barry Eichengreen David Leblang.
Services productivity growth in Australia, Europe and US Robert Inklaar Groningen Growth and Development Centre, University of Groningen and The Conference.
Social Equality Education, Social Equality, and Economic Growth: A View of the Landscape Thorvaldur Gylfason and Gylfi Zoega.
CH. 8: THE ECONOMY AT FULL EMPLOYMENT: THE CLASSICAL MODEL
Illiquidity, Financial Development and the Growth-Volatility Relationship By Enisse Kharroubi Comments by: Arturo Galindo Universidad de los Andes The.
1 The Effect of Benefits on Single Motherhood in Europe Libertad González Universitat Pompeu Fabra May 2006.
Distributive Politics and Economic Growth Alberto Alesina and Dani Rodrik Economic Growth Spring Semester, 2009 Benedikte Fogh Larsen.
Economic Growth: Malthus and Solow
Maria Kazakova, PhD, Gaidar Institute for Economic Policy and Russian Presidential Academy of National Economy and Public Administration Decomposition.
1 J. de Loecker Do Exports Generate Higher Productivity? Evidence from Slovenia (Journal of Int’l Economics, Sep. 2007) presented by Yunrong Li.
Macroeconomics Chapter 101 The Demand for Money and the Price Level C h a p t e r 1 0.
[ 1 ] Sweden and Spain: two contrasting growth experiences Matilde Mas University of Valencia and Ivie Productivity Conference at Saltsjöbaden Stockholm.
Complementary Information How do Equity Markets Complete? Seminario Desarrollo del Mercado Bursátil en Chile SVS-ICARE-UAI Junio 2008.
Copyright © 2008 Pearson Addison-Wesley. All rights reserved. Chapter 6 Economic Growth: Malthus and Solow.
Do Friends and Relatives Really Help in Getting a Good Job? Michele Pellizzari London School of Economics.
Money, Output, and Prices Classical vs. Keynesians.
ECONOMIC INDICATORS. Understanding Economic Indicators  Background Economic Theme: Recognize the stage of the business cycle.
GROWTH AND CORRUPTION. Introduction Malfunctioning government institutions as severe obstacles to investment, entreprenuership and innovasion – Inefficient.
Who is against immigration? Mayda, Anna Marie Who is Against Immigration? A Cross-Country Investigation of Individual Attitudes toward Immigrants.
MACROECONOMICS I March 14 th, 2014 Class 4. Class 4. The Solow-Swan Model (Cont.)
Barbara M. Fraumeni Muskie School of Public Service, USM, Portland, ME & NBER, USA; CHLR, CUFE, Beijing, China ASSA/AEA Annual Meeting San Diego, CA; January.
Extra Lecture: Instrumental Variables Olaf J. De Groot NOTE: The content of this lecture is not part of the exam. It is meant to make you UNDERSTAND the.
Economic Growth Chapter 1. What is Economic Growth? When an economy produces more goods and services, a greater GDP, as time goes by. Economic Growth.
Gender, math and equality of opportunities Marina Murat Giulia Pirani University of Modena and Reggio Emilia Productivity, Investment.
ICEG E uropean Center Factors and Impacts in the Information Society: Analysis of the New Member States and Associated Candidate Countries Pál Gáspár.
Macroeconomics Chapter 151 Money and Business Cycles I: The Price-Misperceptions Model C h a p t e r 1 5.
Lecture 14 Malthusian Model.
Laura Hospido Eva Moreno Galbis CEPREMAP Productivity Project 23rd January 2015 Conference The opinions and analyses are the responsibility of the authors.
Trade, Markets and Economic Growth Harry Flam Institute for International Economic Studies, Stockholm University.
Of 261 Chapter 26 Long-Run Economic Growth. of 262 Copyright © 2005 Pearson Education Canada Inc. Learning Objectives 3. List the main elements of Neoclassical.
Unit 1: Trade Theory Heckscher-Ohlin Model 2/3/2012.
ICT, Corporate Restructuring and Productivity Laura Abramovsky Rachel Griffith IFS and UCL ZEW – November 2007 Workshop on Innovative Capabilities and.
Copyright © 2008 Pearson Addison-Wesley. All rights reserved. Chapter 6 Economic Growth: Solow Model.
1 Discussion of BANK MARKET STRUCTURE, COMPETITION, AND SME FINANCING RELATIONSHIPS IN EUROPEAN REGIONS by Mercieca, Schaeck, and Wolfe Discussion by Allen.
World Bank EU-8 Quarterly Economic Report April 2005 World bank Vilnius office Jekaterina Rojaka.
Recent Research on Industry Clusters ECON 4480 State and Local Economies 1.
WILL RUSSIA FACE LABOR FORCE SHORTAGE IN THE NEXT 20 YEARS? (REVISED RESULTS FOR DISCUSSION ) June 14, 2011.
Chapter 13. Some b usiness cycle facts ECON320 Prof Mike Kennedy.
Mikuláš Luptáčik Martin Lábaj Department of Economic Policy University of Economics in Bratislava June 8, 2012 Bratislava Economic Meeting 2012.
Chapter 2 The Economy: Myth and Reality E pluribus unum (Out of many, one) MOTTO ON U.S. CURRENCY.
Seðlabanki Íslands Inflation control around the world: Why are some countries more successful than others? Thórarinn G. Pétursson Central Bank of Iceland.
Wiener Institut für Internationale Wirtschaftsvergleiche The Vienna Institute for International Economic Studies Vladimir Gligorov Economic.
1 PPPs for Industry Output: A New Dataset for International Comparisons Bart van Ark, Marcel Timmer and Gerard Ypma Groningen Growth and Development Centre.
A Stochastic Model of CPP Liabilities – Preliminary Results Rick Egelton Chief Economist CPPIB October 27, 2007 The views in this presentation reflect.
Productivity vs hours growth Presentation based on: F.Daveri, “Labor productivity growth in Europe: an update”, background paper for the Seventh CEPS Macroeconomic.
MOVING EUROPE’S PRODUCTIVITY FRONTIER: The Role of Human Capital Karl PICHELMANN “Quality of Tertiary Education and the Economic Policy Agenda” Ljubljana,
THE IMPACT OF INTERNATIONAL OUTSOURCING ON EMPLOYMENT: EMPIRICAL EVIDENCE FROM EU COUNTRIES Martin Falk and Yvonne Wolfmayr Austrian Institute of Economic.
26-1 Economics: Theory Through Applications This work is licensed under the Creative Commons Attribution-Noncommercial-Share Alike 3.0 Unported.
Firm Size, Finance and Growth Thorsten Beck Asli Demirguc-Kunt Luc Laeven Ross Levine.
Florida’s Sensitivity to Monetary Policy Changes Marisela Guillen.
Towards more metropolisation ? A systematic empirical overview through the European FUAs Christian Vandermotten September 2011 Institut de Gestion de l’Environnement.
Cost Behaviors Management Accounting. Cost Classifications Association with cost object Cost object is anything for which management wants to collect.
A good measure of productivity Eric Bartelsman Vrije Universiteit Amsterdam and Tinbergen Institute Washington, World Bank, October 31, 2005.
1 Romania: Achieving Sustainable Growth and the Role of the Labor Market Jeffrey Franks European Department International Monetary Fund Bucharest January.
Estimating the Causal Effect of Access to Public Credit on Productivity: the case of Brazil Eduardo P. Ribeiro (IE – UFRJ, Brazil) João A. De Negri (IPEA,
Creating a Forecast Charles Steindel January 21, 2010 All views expressed are those of the author only and not necessarily those of the Federal Reserve.
PowerPoint Presentation by Charlie Cook Copyright © 2004 South-Western. All rights reserved. Chapter 5 The Theory of Economic Growth.
Measurement of Deflators and Real Value Added in the Service Sector Kyoji Fukao (Hitotsubashi University) Taisuke Kameda (Economic and Social Research.
Copyright © 2008 Pearson Addison-Wesley. All rights reserved. Chapter 6 Economic Growth: Solow Model.
EU-KLEMS project: Progress in Economic Underpinnings and Measurement
Joseph B Nichols 2008 NASM of the Econometric Society June 21, 2008
For the World Economy Availability of business services and outward investment: Evidence from French firms Holger Görg Kiel Institute for the World Economy,
Some History of Energy and Emissions
5/5/2019 Financial dependence and industry growth in Europe: Better banks and higher productivity Robert Inklaar and Michael Koetter University of Groningen.
Presentation transcript:

Productivity or Employment: Is it a choice? Andrea De Michelis Federal Reserve Board Marcello Estevão International Monetary Fund Beth Anne Wilson Federal Reserve Board January 4, 2013

The views in this presentation are solely the responsibility of the authors and should not be interpreted as reflecting the views of the International Monetary Fund or the Board of Governors of the Federal Reserve System or of any other person associated with the Federal Reserve System.

Background In general, economic theory assumes that TFP growth follows an exogenous process. In general, economic theory assumes that TFP growth follows an exogenous process. Low TFP growth is seen as worrisome, as many associate it with poor economic performance. Low TFP growth is seen as worrisome, as many associate it with poor economic performance. In reality, not a one-to-one relation between TFP and output growth  key motivation for this paper: TFP growth may be a “choice” variable. In reality, not a one-to-one relation between TFP and output growth  key motivation for this paper: TFP growth may be a “choice” variable. 2

Take the case of Canada: TFP growth has been particularly low. 3

In contrast, employment growth has been quite strong. 4

Same with hours of work. 5

As a result, Canadian GDP growth has outperformed the G7 average. 6

More generally, growth in TFP and labor input are negatively correlated across the OECD. 7

Data: Labor Input and TFP The Conference Board Total Economy Database: total economy annual data, main 20 OECD countries, The Conference Board Total Economy Database: total economy annual data, main 20 OECD countries, The Conference Board Total Economy Database The Conference Board Total Economy Database World/EU KLEMS: annual data, 14 OECD countries, 10 sectors, various sample ranges, but available for most countries of interest World/EU KLEMS: annual data, 14 OECD countries, 10 sectors, various sample ranges, but available for most countries of interest World/EU KLEMS World/EU KLEMS EU AMECO: total economy annual data, European and other G-7 countries, EU AMECO: total economy annual data, European and other G-7 countries, EU AMECO EU AMECO (no hours data, used only for robustness analysis) 8

Other Data Sources for tax data Sources for tax data McDaniel (2007): payroll, income, and consumption taxes, 15 OECD countries, 1950/ McDaniel (2007): payroll, income, and consumption taxes, 15 OECD countries, 1950/ McDaniel Sources for population data Sources for population data United Nations United Nations United Nations United Nations The Conference Board Total Economy Database The Conference Board Total Economy Database The Conference Board Total Economy Database The Conference Board Total Economy Database 9

Negative correlation of TFP and hours growth is robust, holding across datasets and labor inputs DatabaseTED KLEMS † TED KLEMS † Labor InputEmployment Hours Constant1.35***0.86***1.07***0.74*** (0.17)(0.18)(0.10)-0.12 Coefficient-0.53***-0.36*-0.49***-0.37** (0.15)(0.17)(0.11)(-0.09) Observations Adjusted R †KLEMS data spans the time period Standard errors in parentheses. *** p<0.01, ** p<0.05, * p<0.1

…and across time. Correlation remains negative and significant decade by decade (except 90s.) 11 Hours Growth vs. TFP Growth Period s1980s1990s Constant1.07***1.67***1.01***0.60***0.91*** (0.10)(0.13) (0.15)(0.22) Hours Growth-0.49***-0.57***-0.41*** *** (0.11)(0.13) (0.18) Observations 20 Adjusted R Standard errors in parentheses. *** p<0.01, ** p<0.05, * p<0.1

12 Dotted lines represent averages over Countries relative relationship between TFP and H growth fairly stable.

13 But, some drift toward lower TFP/ stronger hours growth in Europe. (1970s and 1980s) (1970s and 1980s) Dotted lines represent the averages over on all charts.

s and Dotted lines represent the averages over on all charts.

Correlation of growth in TFP and hours varies by sector (OECD 14) IndustryCoefficientConstantObservationsAdjusted R Hotels and Restaurants-0.60**(0.26)0.28(0.49) Manufacturing-0.46(0.35)1.19**(0.49) Total Economy-0.37**(0.14)0.74***(0.12) Other Services-0.35*(0.19)0.11(0.30) Wholesale and Retail-0.33(0.48)1.31***(0.40) Financial Services-0.23*(0.12)0.39(0.41) Electricity-0.23(0.26)0.81**(0.30) Agriculture, Forestry, and Fishing-0.21(0.31)2.77***(0.81) Construction-0.15(0.19)0.24(0.25) Mining and Quarrying-0.13(0.28)0.43(1.04) Transportation-0.11(0.37)1.37***(0.42) Standard errors in parentheses. *** p<0.01, ** p<0.05, * p<0.1 Source: World KLEMS, EU KLEMS. 15

But variation in industry composition does not explain cross-country variance. 16 TFP Growth vs. Hours Growth Baseline U.S. time-varying weight Constant0.74***0.82*** (0.12)(0.13) Hours Growth-0.37**-0.38*** (0.14)(0.09) Observations 14 Adjusted R Standard errors in parentheses. *** p<0.01, ** p<0.05, * p<0.1 Sources: EU KLEMS, World KLEMS and authors’ calculations.

What could explain this negative correlation? 17 Measurement error? Probably not. Measurement issues with TFP more relevant at cyclical frequencies. Result does not depend on the database used (TED, World/EU KLEMS) Country mix of TFP and hours growth is relatively stable over time. Result holds within industry/country pair. TFP as a choice variable: Given the availability of labor inputs, TFP growth is “chosen”.

Causality: hypothesis 18 Factor endowment not only affects the choice of capital or labor-intensive technologies but also how much to invest in techniques and processes that boost TFP. Given that productivity innovations are costly, countries with abundant labor supply may “choose” less productivity growth. Given that productivity innovations are costly, countries with abundant labor supply may “choose” less productivity growth. Test: Is there a causality going from labor supply shocks to TFP growth? Test: Is there a causality going from labor supply shocks to TFP growth?

Causality: strategy 19 Find variables that affect TFP growth only through the decision of hiring labor. Use these variables as instruments in regressions linking TFP growth to hours growth. Good candidates: Tax wedge: differences in taxes influence labor supply and introduce a gap between MRS and MPL (Prescott, 2004, and Ohanian et al., 2007). Population growth: availability of labor input.

Causality: IV regressions using tax wedge and population growth 20 Step 1- Dependent variable -- Hours Growth Constant-2.42**-0.55*** (1.00)(0.16) Average Tax Wedge4.52** (1.60) Population Growth1.80*** (0.24) Step 2- Dependent variable -- TFP Growth Constant1.22***1.07*** (0.11) Predicted Hours Growth-0.71***-0.47*** (0.19)(0.15) Observations1520 Standard errors in parentheses. *** p<0.01, ** p<0.05, * p<0.1 Time period spans Sources: Total Economy Database, McDaniel tax data.

Is the instrument independently correlated with TFP growth? 21 Dependent variable -- TFP Growth Constant2.18***1.03*** (0.54)(0.21) Hours Growth-0.31**-0.53** (0.12)(0.24) Average Tax Wedge-1.79* (0.90) Population Growth0.10 (0.49) Observations1520 Standard errors in parentheses. *** p<0.01, ** p<0.05, * p<0.1 Time period spans Sources: Total Economy Database, McDaniel tax data.

Conclusions There is robust negative correlation between TFP growth and hours growth across OECD countries. There is robust negative correlation between TFP growth and hours growth across OECD countries. At least some of this negative correlation seems to be a result of reactions to shocks in labor input. So, TFP could, in part, be a “choice” variable. At least some of this negative correlation seems to be a result of reactions to shocks in labor input. So, TFP could, in part, be a “choice” variable. This mechanism makes more sense than explanations of TFP growth differences between, say, Germany and Canada based on institutions. These are all rich, mature societies with good institutions. This mechanism makes more sense than explanations of TFP growth differences between, say, Germany and Canada based on institutions. These are all rich, mature societies with good institutions. The endogeneity of TFP could also help explain longer-run developments in Europe and Canada. The endogeneity of TFP could also help explain longer-run developments in Europe and Canada. 22

Conclusions Looking ahead, population aging could trigger a wage adjustment and an endogenous increase in TFP growth in countries so far specialized in fast hours growth/low TFP growth. Looking ahead, population aging could trigger a wage adjustment and an endogenous increase in TFP growth in countries so far specialized in fast hours growth/low TFP growth. But no guarantee, look at Japan. But no guarantee, look at Japan. Good institutions that support innovation and product market competition are always good for TFP growth, and would raise incentives to be more productive and ease transition. Good institutions that support innovation and product market competition are always good for TFP growth, and would raise incentives to be more productive and ease transition. 23

Thanks! 24

25

TFP Growth vs. Hours Growth by Sector (G7) IndustryCoefficientConstantObservationsAdjusted R Hotels and Restaurants-0.99**(0.27)1.07*(0.50)70.67 Other Services-0.72(0.36)0.72(0.50)70.33 Manufacturing-0.48***(0.12)1.12***(0.19)70.73 Wholesale and Retail-0.49(0.48)1.74***(0.39)70.01 Total Economy-0.47**(0.15)0.78***(0.11)70.59 Electricity-0.42(0.44)0.41(0.47) Construction-0.35(0.38)0.02(0.43) Mining and Quarrying-0.18(0.24)-1.20(0.96) Agriculture, Forestry, Fishing-0.17(0.66)3.06(1.86) Transportation0.16(0.69)0.98(0.79) Financial Services-0.16(0.19)0.075(0.60) Standard errors in parentheses. *** p<0.01, ** p<0.05, * p<0.1 Source: World KLEMS, EU KLEMS. 26

Results: Using Tax Wedge as an Instrument for Hours 27 Step 1 Regression Hours Growth vs. Average Tax Wedge† by Period Decades s1980s1990s Constant-2.42**-4.21**-2.88* (1.00)(1.82)(1.35)(1.19)(1.33) Average Tax Wedge4.52**6.15**5.51** (1.60)(2.69)(2.14)(1.96)(2.21) Observations 15 Adjusted R † Equal to (1- tax rate on labor income)/(1 + tax rate on consumption expenditures) Step 2 Regression TFP Growth vs. Predicted Hours Growth by Period Decades s1980s1990s Constant1.22***1.73***1.08***0.75***1.46 (0.11)(0.16)(0.20)(0.17)(0.84) Predicted Hours Growth-0.71***-0.83*** *-1.13 (0.19)(0.27)(0.26)(0.37)(0.97) Observations 15 Adjusted R

28 TFP Growth vs. Hours Growth and Average Tax Wedge Periods s1980s1990s Constant2.18***3.55*** *1.59* (0.54)(1.09)(0.67)(0.79) Hours Growth-0.31**-0.40**-0.53*** *** (0.12)(0.14)(0.12)(0.17) Average Tax Wedge-1.79* (0.90)(1.60)(1.11)(1.34)(1.35) Observations 15 Adjusted R Standard errors in parentheses. *** p<0.01, ** p<0.05, * p<0.1

29 Step 1 Regression Hours Growth vs. Population Growth by Decade Decades s1980s1990s Constant-0.55***-1.31*** (0.16)(0.28)(0.23)(0.31)(0.17) Population Growth1.80***1.96***1.58***1.22**1.58*** (0.24)(0.36)(0.38)(0.46)(0.27) Observations 20 Adjusted R Step 2 Regression TFP Growth vs. Predicted Hours Growth by Decade Decades s1980s1990s Constant1.07***1.67***0.97***0.53**0.90*** (0.11)(0.16)(0.18)(0.20)(0.28) Predicted Hours Growth-0.47***-0.52** ** (0.15)(0.20)(0.21)(0.34)(0.25) Observations 20 Adjusted R Results: Using Population Growth as an Instrument for Hours

30 TFP Growth vs. Hours Growth and Population Growth Decade s1980s1990s Constant1.03***1.52***0.94*** *** (0.21)(0.39)(0.18)(0.28)(0.24) Hours Growth-0.53**-0.63***-0.48** * (0.24)(0.22)(0.18)(0.21)(0.33) Population Growth (0.49)(0.54)(0.41)(0.48)(0.63) Observations 20 Adjusted R Standard errors in parentheses. *** p<0.01, ** p<0.05, * p<0.1