1. 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

2. 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

3. 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

5. 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 1995-03), labor productivity growth is low  When productivity growth is high (US in 1995-03 and the EU in the 1970s and the 1980s), growth of hours is low

6. Productivity and employment growth in the EU and the US (1995-2002) Source: Daveri (2004), Is there a European productivity problem?, CEPS WD 205, July 2004

7. 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

8. TOTAL HOURS Growth rates, % points ISIC Rev.3 1993-20031993-19981998-2003 AGRICULTURE, HUNTING AND FORESTRY 01-02 -3.92-4.57-3.26 MINING AND QUARRYING 10-14 -2.08-1.96-2.21 Total manufacturing 15-37 -0.080.03-0.20 Non-durable manufacturing 15-28 -0.190.00-0.38 Durable manufacturing 29-37 0.140.090.20 ELECTRICITY, GAS AND WATER SUPPLY 40-41 -3.03-3.01-3.06 CONSTRUCTION 45 0.91-0.552.40 TOTAL SERVICES 50-99 1.160.861.46 BUSINESS SECTOR SERVICES 50-74 1.471.021.92 WHOLESALE AND RETAIL TRADE; REPAIRS 50-52 0.13-0.320.58 HOTELS AND RESTAURANTS 55 2.101.632.56 TRANSPORT AND STORAGE AND COMMUNICATION 60-64 0.66-0.241.56 FINANCIAL INTERMEDIATION 65-67 0.090.38-0.19 REAL ESTATE, RENTING AND BUSINESS ACTIVITIES 70-74 4.534.544.52 NON-AGRICULTURE BUSINESS SECTOR s10-74 0.37-0.100.84 Total 01-99 0.420.060.79 Italy

9. VALUE ADDED PER HOUR WORKED Growth rates, % ISIC Rev.3 1993-20031993-19981998-2003 AGRICULTURE, HUNTING AND FORESTRY01-02 3.926.131.76 MINING AND QUARRYING 10-14 1.433.63-0.73 Total manufacturing 15-37 1.412.750.10 Non-durable manufacturing 15-28 1.242.150.34 Durable manufacturing 29-37 1.844.16-0.43 ELECTRICITY, GAS AND WATER SUPPLY 40-41 6.105.406.81 CONSTRUCTION 45 0.170.210.14 TOTAL SERVICES 50-99 0.801.040.57 BUSINESS SECTOR SERVICES 50-74 0.841.290.38 WHOLESALE AND RETAIL TRADE; REPAIRS50-52 1.742.950.54 HOTELS AND RESTAURANTS55 -0.020.45-0.48 TRANSPORT AND STORAGE AND COMMUNICATION 60-64 2.282.791.77 FINANCIAL INTERMEDIATION65-67 1.512.320.71 REAL ESTATE, RENTING AND BUSINESS ACTIVITIES70-74 -1.78-2.51-1.05 NON-AGRICULTURE BUSINESS SECTOR (diversa da def OECD) s10-74 1.522.320.72 Total 01-99 1.311.900.72 Italy

10. Italy – summing up Negative correlation between employment and labor productivity growth. Less so over the 1990s. 1993-03: -0.63 1993-98: -0.75 1998-2003: -0.29 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