Productivity vs hours growth Presentation based on: F.Daveri, “Labor productivity growth in Europe: an update”, background paper for the Seventh CEPS Macroeconomic Policy Group Report Francesco Daveri Università di Parma

Outline Question: is there a trade-off between productivity and hours?  My contribution: provide some aggregate and industry evidence  EU vs US - aggregate  EU countries - aggregate  Italy – industry data

Labor productivity growth, EU vs. US Is there a EU productivity drift? Yes It has been there for a long while now It got worse in the early 2000s Mis-measurement and cyclical adjustment does not change much the picture

EU vs. US – summing up Evidence of LONG-RUN NEGATIVE CORRELATION between growth of hours and growth of labor productivity  When hours growth is high (US in the 1970s and the1980s and EU in ), labor productivity growth is low  When productivity growth is high (US in and the EU in the 1970s and the 1980s), growth of hours is low

Productivity and employment growth in the EU and the US ( ) Source: Daveri (2004), Is there a European productivity problem?, CEPS WD 205, July 2004

EU – summing up Trade-off between hours and productivity not ubiquitous  Ireland, the UK and Finland: trade-off not there  Germany as well (everything was just bad)  In the other fast growing countries, usually low growth of hours  Rich: Sweden, Austria, Denmark. Also France, to some extent.  Poor: Formerly socialist countries, Greece, Portugal  Slow growing countries successful in creating jobs  Italy, Spain, Netherlands Hence: trade-off often but not always there. Not just in the EU

TOTAL HOURS Growth rates, % points ISIC Rev AGRICULTURE, HUNTING AND FORESTRY MINING AND QUARRYING Total manufacturing Non-durable manufacturing Durable manufacturing ELECTRICITY, GAS AND WATER SUPPLY CONSTRUCTION TOTAL SERVICES BUSINESS SECTOR SERVICES WHOLESALE AND RETAIL TRADE; REPAIRS HOTELS AND RESTAURANTS TRANSPORT AND STORAGE AND COMMUNICATION FINANCIAL INTERMEDIATION REAL ESTATE, RENTING AND BUSINESS ACTIVITIES NON-AGRICULTURE BUSINESS SECTOR s Total Italy

VALUE ADDED PER HOUR WORKED Growth rates, % ISIC Rev AGRICULTURE, HUNTING AND FORESTRY MINING AND QUARRYING Total manufacturing Non-durable manufacturing Durable manufacturing ELECTRICITY, GAS AND WATER SUPPLY CONSTRUCTION TOTAL SERVICES BUSINESS SECTOR SERVICES WHOLESALE AND RETAIL TRADE; REPAIRS HOTELS AND RESTAURANTS TRANSPORT AND STORAGE AND COMMUNICATION FINANCIAL INTERMEDIATION REAL ESTATE, RENTING AND BUSINESS ACTIVITIES NON-AGRICULTURE BUSINESS SECTOR (diversa da def OECD) s Total Italy

Italy – summing up Negative correlation between employment and labor productivity growth. Less so over the 1990s : : : Two comments  very high negative correlation possibly sign of fast technical change and parallel mismatch of old abilities  When correlation is low at times of declining productivity growth, simply very bad news