R:\Live Files\IBK Management\Inbox\LN0006UI\LSE0502_V2.ppt
7/27/2016
What’s wrong with Europe’s Economy?
Queen’s Prize lecture
Adair Turner
5th February 2003
0
R:\Live Files\IBK Management\Inbox\LN0006UI\LSE0502_V2.ppt
7/27/2016
US and EU Growth Compared
Real GDP Growth Per Annum: %
1980-95
1995-01
1980-01
US
2.9
3.6
3.1
EU15
2.1
2.4
2.2
Real GDP Growth Per Capita Per Annum: %
Source:
1980-95
1995-01
1980-01
US
1.9
2.3
2.0
EU15
1.8
2.1
1.9
OECD Historical Statistics, OECD Economic Outlook
1
R:\Live Files\IBK Management\Inbox\LN0006UI\LSE0502_V2.ppt
7/27/2016
Labour Productivity per Hour Worked
% Per Annum Growth
US
EU15
1990 – 1995
1.1
2.4
1995 - 2000
2.2
1.5
Source:
van Ark, Inklaar and McGuckin (2002)
2
R:\Live Files\IBK Management\Inbox\LN0006UI\LSE0502_V2.ppt
7/27/2016
Unemployment Rates 1973-2000
Unemployment Rate %
1974
1983
1996
2000
US
5.5
9.5
5.4
4.1
France
2.8
8.3
12.3
9.6
Germany
2.1
7.9
8.8
9.5
EU 15
2.8
9.8
10.8
8.4
Source: OECD Historical Statistics (1973-2000)
3
R:\Live Files\IBK Management\Inbox\LN0006UI\LSE0502_V2.ppt
7/27/2016
Real GDP per Capita Growth 1993 - 2000
% Per Annum
Ireland
8.4
Finland
Spain
3.1
US
3.0
Sweden
3.0
Netherlands
Denmark
Source:
4.4
2.8
2.6
OECD Historical Statistics (1973-2000)
4
R:\Live Files\IBK Management\Inbox\LN0006UI\LSE0502_V2.ppt
7/27/2016
Employment Rates - 2000
% of Population aged 15-64
Norway
78
Denmark
76
US
75
Sweden
73
Netherlands
72
Portugal
72
UK
71
Austria
69
Finland
68
Germany
67
Ireland
66
France
62
Belgium
60
Spain
57
Italy
55
Greece
55
5
R:\Live Files\IBK Management\Inbox\LN0006UI\LSE0502_V2.ppt
7/27/2016
Productivity, Labour Input and Prosperity:
France and US 1999
France = 100
GDP per Hour Worked
US
102
France
100
GDP per Employee
US
121
France
100
GDP per Capita
US
140
France
100
Hours Worked
per Employee
US
118
France
100
Employees per
Head of Population
US
115
France
100
Source: O’Mahony and De Boer (2002), OECD Labour Force Statistics 1981-2001
6
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7/27/2016
Hours Worked per Person in Employment
1979
1990
West Germany
1,732
1,583
1,446
France
1,806
1,657
1,532
Italy
1,715
1,674
1,606
UK
1,815
1,767
1,711
—
1,922
1,674
1,517
1,549
1,603
—
1,492
1,482
1,838
1,838
1,821
Ireland
Sweden
Denmark
US
2001
Source: OECD Employment Outlook: July 2002
7
R:\Live Files\IBK Management\Inbox\LN0006UI\LSE0502_V2.ppt
7/27/2016
Labour productivity per hour worked US
1996 = 100
120.00
100.00
80.00
60.00
US
UK
France
Total Germany
West Germany
Japan
40.00
20.00
19
50
19
52
19
54
19
56
19
58
19
60
19
62
19
64
19
66
19
68
19
70
19
72
19
74
19
76
19
78
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
0.00
Source:
O’Mahony and De Boer (2002)
8
R:\Live Files\IBK Management\Inbox\LN0006UI\LSE0502_V2.ppt
7/27/2016
Relative Output Per Hour Worked By Sector: 1999
UK = 100
Manufacturing
UK
Distributive
Trades
100
UK
Germany*
129
Germany*
France
132
France
US
155
US
Transport &
Communications
100
UK
112
Germany*
150
161
France
100
88
101
US
113
* Note: German figures are for all Germany. Separate West German figures are unavailable on a comparative basis after about 1996, but
would show a significantly higher productivity
Source: O’Mahony and De Boer 2002
9
R:\Live Files\IBK Management\Inbox\LN0006UI\LSE0502_V2.ppt
7/27/2016
Labour Productivity Per Hour Worked
% Per Annum Growth
US
France
UK
Germany*
1979-89
0.97
2.94
2.41
1.92
1989-95
1.15
1.42
2.28
3.13
1995-99
1.92
1.16
1.37
1.98
* West Germany prior to 1989. Note that high German productivity growth in the 1990s is strongly driven by rapid increases in East German
productivity from very low levels.
Source: O’Mahony and De Boer (2002)
10
R:\Live Files\IBK Management\Inbox\LN0006UI\LSE0502_V2.ppt
7/27/2016
US Productivity Per Hour: 1973 - 2002
Index 1992 = 100
120
Trend : 2.4% p.a.
110
100
90
Trend : 1.4% p.a.
80
1973 1975 1977 1979 1982 1984 1986 1988 1991 1993 1995 1997 2000 2002
Source:
Bureau of Labor Statistics. Index on logarithmic scale
11
R:\Live Files\IBK Management\Inbox\LN0006UI\LSE0502_V2.ppt
7/27/2016
Industry Contribution to Labour Productivity Gap
% Points of Difference
U.S.A versus UK
Primary and
Construction
Utilities
Manufacturing
U.S.A versus Germany
Primary and
Construction
1
2
Utilities
10
Distributive
Trades
Finance and
Business Services
Other*
Total Market
Services
Manufacturing
14
6
3
36
3
2
(3)
Distributive
Trades
12
Finance and
Business Services
1
Other*
Total Market
Services
2
17
* Transport, Communication + Personal Services
Source: O’Mahony and De Boer (2002)
12
R:\Live Files\IBK Management\Inbox\LN0006UI\LSE0502_V2.ppt
7/27/2016
Labour Productivity by Type of Industry:
% P.A. Growth Rates
United States
European Union
1990 - 1995 1995 - 2002
1995 - 2002
Total Economy
1.1
2.2
1.5
ICT Producing
Industries
6.1
6.5
8.5
Sector drivers of
growth differential
Retailing:
ICT Using
Industries
Non ICT
Industries
Source:
1.4
4.2
1.3
Wholesaling: 26%
Securities
Trading:
0.4
van Ark, Inklaar and McGuckin (2002)
0.4
1.0
55%
20%
Other sectors: NIL
13
R:\Live Files\IBK Management\Inbox\LN0006UI\LSE0502_V2.ppt
7/27/2016
Labour Productivity Growth by Sector 1995 1999
% Per Annum
U.S.A.
Utilities
US – France
France
2.3
3.2
(0.9)
Manufacturing
4.2
2.7
1.5
Transport and
Communications
4.2
2.5
1.7
Distributive
Trades
5.8
Financial and
Business Services
Non-Market
Services
2.4
(0.1)
1.1
4.7
(0.3)
2.7
0.8
(0.9)
Source: O’Mahony and De Boer, 2002
14
R:\Live Files\IBK Management\Inbox\LN0006UI\LSE0502_V2.ppt
7/27/2016
The Barcelona Reform Agenda
• Strengthening European Networks
 Open skies in Airlines
 Electricity Interconnection
• Liberalising Electricity and Gas Markets
• Financial Market Liberalisation
Specific Commission
Proposals
• Reforming European Labour Markets
• A Europe of Education, Knowledge and Research
General Principles and
Guidelines
15
R:\Live Files\IBK Management\Inbox\LN0006UI\LSE0502_V2.ppt
7/27/2016
Energy Liberalisation at Barcelona
“If the summit fails, the markets will reflect the lack of
will in Barcelona”
[Loyola de Palacio, EU Energy Commissioner]
“France blocked a proposal that would have
guaranteed for households a choice of electricity
suppliers. The decision cast doubt on the ambitious
plans of the EU to become more competitive”
16
R:\Live Files\IBK Management\Inbox\LN0006UI\LSE0502_V2.ppt
7/27/2016
Employment Rates - 2000
% of Population aged 15-64
Norway
78
Denmark
76
US
75
Sweden
73
Netherlands
72
Portugal
72
UK
71
Austria
69
Finland
68
Germany
67
Ireland
66
France
62
Belgium
60
Spain
57
Italy
55
Greece
55
17
R:\Live Files\IBK Management\Inbox\LN0006UI\LSE0502_V2.ppt
7/27/2016
Average Hourly Wage Costs: 2000
Euros
Employer’s
Social
Security
Wages
Germany
US
*Plus other unavoidable costs of employing
Source: Eurostat Yearbook 2002, Page 213
7.7
20.8
20.2
5.3
28.5
25.5
18
R:\Live Files\IBK Management\Inbox\LN0006UI\LSE0502_V2.ppt
7/27/2016
General Government Total Outlays as % of GDP:
2001
Sweden
52.5
Denmark
50.8
Germany
45.9
Italy
45.7
Finland
Netherlands
Spain
Source:
OECD Economic Outlook, June 2002
44.6
41.7
38.5
19
R:\Live Files\IBK Management\Inbox\LN0006UI\LSE0502_V2.ppt
7/27/2016
GDP per capita growth and Public Expenditure
(1960-1995)
5
Japan
GDP per capita % growth
4.5
4
3.5
3
2.5
2
1.5
1
25
30
35
40
Public Expenditure (% GDP)
45
50
55
y = - 0 .0 17 3 x + 3 .3 3 7 4
2
R = 0 .0 3 4 7
Source: OECD Historical Statistics
20
R:\Live Files\IBK Management\Inbox\LN0006UI\LSE0502_V2.ppt
7/27/2016
GDP per capita growth and Public Expenditure
(1960-1995)
Without Japan
GDP per capita % growth
4.0
3.5
3.0
2.5
2.0
1.5
1.0
25
30
Source: OECD Historical Statistics
35
40
45
Public Expenditure (% GDP)
50
55
y = 0.0141x + 1.9064
R2 = 0.0369
21
R:\Live Files\IBK Management\Inbox\LN0006UI\LSE0502_V2.ppt
7/27/2016
Exports Have Sustained Eurozone Growth
Eurozone: Contribution of Domestic
Demand and Net Exports to GDP
Exports, % YoY
20
5
15
4
Eurozone
10
3
5
2
0
1
GDP Growth
Domestic demand
contribution
UK
-5
0
US
-10
-15
Net exports
contribution
-1
-2
1998
1999
2000
2001
Source: Merrill Lynch, European Economics, January 2003
2002
1998
1999
2000
2001
2002
22
R:\Live Files\IBK Management\Inbox\LN0006UI\LSE0502_V2.ppt
7/27/2016
Consumer Expenditure, % Change
Year on Year
6
5
4
3
2
1
0
-1
-2
2000
2001
2002
Source: DATASTREAM
UK
US
Germany
France
Source: Datastream
23
R:\Live Files\IBK Management\Inbox\LN0006UI\LSE0502_V2.ppt
7/27/2016
Italian Gross Government Debt
as % of GDP
140%
124%
120%
107%
100%
90%
80%
Maastricht Criterion
60%
40%
20%
0%
1976
Source:
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
OECD Historical Statistics (1973-2000)
24
R:\Live Files\IBK Management\Inbox\LN0006UI\LSE0502_V2.ppt
7/27/2016
General Government Structural Balances: 2000
% of GDP
UK
1.5%
US
1.3%
Eurozone
(1.0%)
Germany
Italy
France
(1.3%)
(1.4%)
(1.7%)
Source: OECD Economical Outlook (June 2002)
25
R:\Live Files\IBK Management\Inbox\LN0006UI\LSE0502_V2.ppt
7/27/2016
The Ageing Population
Population aged 65+ as % of those aged 15-64
2000
2025
2050
Spain
24.8
36.1
73.8
Italy
26.7
40.6
68.1
Germany
24.1
39.0
54.7
France
24.5
36.2
46.7
UK
24.4
32.8
39.2
US
18.6
29.3
34.9
Source: World Population ageing 1950 - 2050, United Nations, 2001
26
R:\Live Files\IBK Management\Inbox\LN0006UI\LSE0502_V2.ppt
7/27/2016
Public Pension Expenditure 2000 - 2050
% of GDP
2000
2020
2050
9.4
10.2
17.7
Italy
14.2
14.9
n.a.
Germany
10.3
10.6
14.6
France
12.1
15.0
n.a.
5.1
4.9
4.9
Spain
UK
Source: European Economy – Public Finance in EMU 2001, Pension Green Paper (2002) for UK
27
R:\Live Files\IBK Management\Inbox\LN0006UI\LSE0502_V2.ppt
7/27/2016
Europe’s Priorities
Implicit
ImplicitininEuropean
EuropeanSummits
Summits
Product
ProductMarket
MarketLiberalisation
Liberalisation
True
TruePriorities
Priorities
Short/Medium
Short/MediumTerm
Term
Long
LongTerm
Term
Eurozone
EurozoneMacro
Macro
Framework
Framework
Ageing
AgeingPopulation
Populationand
and
Pensions
Pensions
Declining Importance
Labour
LabourMarket
MarketReform
Reform
Labour
LabourMarket
MarketReform
Reform
Education,
Education,Science
Scienceand
andResearch
Research
Education,
Education,Science
Scienceand
and
Research
Research
Eurozone
EurozoneMacro-Economic
Macro-Economic
Framework?
Framework?
Product
ProductMarket
Market
Liberalisation
Liberalisation
Ageing
AgeingPopulation
Populationand
and
Pensions?
Pensions?
28
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Population Growth and Prospects
Million
500
U.S.A
400
European
Union
300
200
0
1980
2000
2020
2040
2050
FORECASTS
29