1. EU KLEMS project on Growth and Productivity in the European Union Presentation for the Economic Policy Committee 22 May 2006, Brussels Bart van Ark, Groningen Growth of Development Centre, University of Groningen This project is funded by the European Commission, Research Directorate General as part of the 6th Framework Programme, Priority 8, "Policy Support and Anticipating Scientific and Technological Needs".

2. 2 EU KLEMS project is 3-year statistical and analytical research project funded by 6th Framework Programme Create database on growth and productivity accounts by industry (NACE 60+) for EU member states with a breakdown into contributions from capital (K), labour (L), energy (E), materials (M) and service inputs (S) from 1970 (revision and pre-revision) 15 research institutes across Europe and co-operation with leading institutes in U.S., Canada and Japan Strong involvement of many national statistical institutes (NSIs): Provide basic data (in particular national accounts) for EU KLEMS database Provide feedback on data use and methodologies Validate statistical module of the database with matches official statistics (there will also be an analytical module which are not official statistics) Work with Eurostat and European Commission on implementation of growth and productivity accounts in national statistical programmes Main characteristics of EU KLEMS

3. 3 NSIs actively contribute to EU KLEMS Three status positions: Subcontracting: Statistics Finland, ISTAT, Statistics Netherlands Participatory status: Statistics Sweden, STATEC (Luxembourg), ONS Observer status: INSEE, Statistics Denmark, Statistisches Bundesamt, Institute of National Statistics (Belgium), Statistics Austria, Statistics Ireland, INE, Statistical Office Slovakia, Statistical Office Poland, CSO Hungary, Czech Statistical Office, Statistical Office Slovenia Contacts under development: Greece, Portugal, Lithuania, Latvia, Estonia, Cyprus, Malta Also contacts with: USA (Harvard University, BEA, BLS),Japan (RIETI, Hitotsubashi), Canada (Statistics Canada) OECD (Statistics Dept., DSTI)

4. 4 Background for EU KLEMS project Policy interests: Monitoring and evaluating the Lisbon and Barcelona agendas, complementary to existing indicators (e.g. Eurostat structural indicators) Understand divergence between EU and US productivity performance Impact of new entry of 10 member states on EU economic performance Developments in academic world: Growth regression literature is troubled by lack of country and institution specific characteristics Growth accounting methodologies have become more sophisticated Need for better data to test hypotheses on, e.g., skill-biased technological change and role of non-technological innovations Statistical developments in productivity measurement and national accounts Eurostat Handbooks on Price and Volume Measures & Input-Output Manual Publication of OECD Productivity and Capital Measurement Manuals Developments in light of implementation of present SNA and steps towards next SNA version (e.g. role for intangibles - Canberra II group) Increased availability of firm level databases for productivity measurement

5. 5 Productivity is the Key Variable of Economic Performance

6. 6 Output from EU KLEMS database Series on nominal values of output (gross output & value added), intermediate inputs (energy, materials, service inputs) and factor inputs (labour by age/skill/gender and capital by asset type) by industry & country Volume series (1995=100 and growth rates) Growth accounting series on output and contributions of intermediate, factor inputs, and total factor productivity Additional variables: compensation of factor inputs, quantity of labour, technology variables (R&D & patents), import shares in intermediate inputs Also comparative levels with industry specific output and input PPPs

7. 7 Research Approaches in EU KLEMS Data research & methodology of productivity and national accounting: Capital services, price indices for ICT, input-output analysis International comparisons of skill levels Stress testing and quality control Intermediate level research Measurement of services output Rates of return and profitability Analysis of productivity, prices, industry structures Decomposition and inputs contributions in growth accounting Technology and innovation indicators Analytical research Labour markets and skills Technological progress and innovation Link to productivity research using firm level databases

8. 8 Intermediate level research: decomposition of growth rates and comparative levels Contributions of factor inputs (labour and capital) and TFP to aggregate growth of LP Contributions of major industry groups to aggregate LP Contribution of factor inputs to productivity growth to industry LP International comparisons of LP and TFP productivity levels between major industry groups International comparisons of relative intensity levels of intermediate and factor input use Sources: based on pre-EU KLEMS data from Groningen Growth and Development Centre (http://www.ggdc.net)

9. 9 Main cause of slower productivity growth in EU-15 is decline in TFP growth Source: pre-EU KLEMS data, GGDC

10. 10 Market services industries are key to aggregate labour productivity growth Source: pre-EU KLEMS data, GGDC

11. 11 Much variation between service industries Source: pre-EU KLEMS data, GGDC

12. 12 Continental European countries show slowest TFP growth in market services Source: pre-EU KLEMS data, GGDC

13. 13 European countries least energy and services-intensive but more materials- intensive than U.S. Weighted average intermediate input use per hour worked, 1997, US=1.0 Source: pre-EU KLEMS data, GGDC

14. 14 U.S. most ICT intensive and highest labour quality; non ICT capital intensity in Europe still larger Weighted average factor input use per hour worked, 1997, US=1.0 Source: pre-EU KLEMS data, GGDC

15. 15 Time frame Preliminary database available to NSIs for feedback since April 2006 Stress testing and quality control in autumn of 2006 (incl. EU KLEMS Data Co-ordination Group meeting) November 2006: final discussion at Eurostat NAWG for preparation of statistical modules End of 2006/early 2007: public release of EU KLEMS analytical module by Subsequent (gradual) release of statistical modules in consultation with NSIs Beginning of 2007: first discussion of public results at EPC February/March 2007: public launch event in Brussels 2007: development of Statistical Implementation Plan End of 2007: 2nd release and publication of 2 or 3 volume series on EU KLEMS (methodology, comparative country studies and analytical research)

16. 16 Contact Details Bart van Ark (project director) Groningen Growth and Development Centre,University of Groningen PO Box 800, 9700 AV Groningen Telephone: +31 50 363 3674 E-mail: h.h.van.ark@rug.nl Gerard Ypma (project administrator) Groningen Growth and Development Centre,University of Groningen PO Box 800, 9700 AV Groningen Telephone: +31 50 363 4838 E-mail: g.ypma@rug.nl E-mail:euklems@eco.rug.nl Website: http://www.euklems.net