1 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.

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Presentation transcript:

1 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

2 Order from

3 Productivity trends in OECD have diverged since the mid 1990s...

4 … and this divergence process has continued through the recent slowdown United European New OECD Rest of States Union Japan Members a OECD b Labour Productivity Growth (annual average, percent) Labour Hours Growth 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

5 Has Europe been pushed on a slow productivity growth track? Source: Groningen Growth and Development Centre and The Conference Board Europe

6 Less working hours and lower employment intensity has eroded EU income level Source: Groningen Growth and Development Centre and The Conference Board Europe

7 Higher participation offset by lower productivity and less working hours Source: Groningen Growth and Development Centre and The Conference Board Europe

8 Substantial variation between EU member states, but more for productivity than income gaps Source: Groningen Growth and Development Centre and The Conference Board Europe US=100

9 Pieces of the Puzzle  Information and Communication Technology is only part of the problem

10 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

11 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

12 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.

13 EU nominal wage growth fell behind U.S. growth during second half of 1990s

14 France followed EU trend in nominal wages

15 Germany showed acceleration in nominal wage growth in late 1990s

16 UK nominal wage growth was more like U.S. pattern

17 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

18 Differences in ICT-using services drive the EU/U.S. productivity differential

19 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

20 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