Productivity in Europe.
From the expansion to the crisis
Matilde Mas
University of Valencia and Ivie
World KLEMS Conference. Break Out Session: Europe
Harvard, August 20, 2010
[1]
Industrial Productivity in Europe: Growth and Crisis
Editors: Matilde Mas & Robert Stehrer
Edward Elgar Editors
PART I. INTRODUCTION
Mas, M.: “Productivity in the advanced countries. From the expansion to the crisis”
Jorgenson, D.W., Ho Mun S. Samuels, J.D. and K. Stiroh: “Industry Origins of the
American Productivity Resurgence”
PART II. COUNTRY CHAPTERS
Hans-Olof Hagén: “Growth in the Nordic business sector”
O´Mahony, M, Nayman, L. Gorning, M. and B. Gorzig: “Productivity transitions in large
mature economies: France, Germany and the UK”
Kegels, Ch., Peneder, M. and H. van der Wiel: “Productivity performance in Three Small
European countries: Austria, Belgium and the Netherlands”
Havlik, P., Leitner, S. and R. Stehrer: “Growth Resurgence, Productivity Catching-up and
Labour Demand in CEECs”.
Mas, M., Milana, C. and L. Serrano: “Spain and Italy: catching up and falling behind. Two
different tales of productivity slowdown”
Fukao, K., Miyagawa, T., Hak K. Pyo and K. Hee Rhee: “Estimates of Multifactor
productivity, ICT Contributions and Resource reallocation effects in Japan and Korea”
[2]
Industrial Productivity in Europe: Growth and Crisis
Editors: Matilde Mas & Robert Stehrer
Edward Elgar Editors
PART III. SPECIFIC TOPICS
Landesmann, M. Leitner, S. Stehrer, R. and T. Ward: “Skills and industrial
competitiveness”
Esposito, P. and R. Stehrer: “Effects of High-Tech Capital, FDI, and Outsourcing on
Demand for Skills in West and East”
Kangasniemi, M., Mas, M., Robinson, K. and L. Serrano: “The economic impact of
Migration. Productivity Analysis for Spain and the UK”
Van der Wiel, H. Creusen, H. van Leeuwen and E. van der Pijll: “Cross your
border and look around”
Hyun Jeong Kim and Hak K. Pyo: “International comparison of Productivity in
Market Services: Korea with EU KLEMS Member countries”
Oulton, N. and A. Rincón-Aznar: “Rates of return and alternative measures of
capital input: 14 countries and 10 branches, 1971-2005”
Inklaar, R. and M.P. Timmer: “Productivity Convergence Across Industries and
Countries: The Importance of Theory-based Measurement”.
[3]
Productivity in Europe. From the expansion to the crisis
Topics that we deal with in this presentation:
1. Labor productivity from a long run perspective
2. The impact of the economic crisis started in 2007
3. Productivity from an industry's perspective
4. Sources of productivity growth: the relevance of the new information
and communication technologies (ICT)
 We will compare the EU results with that of the USA and Japan
[4]
1. Labour productivity from
a long run perspective
[5]
Labor productivity from a long run perspective
GVA, hours worked and labour productivity. Annual rate of growth. 1995-2009 (percentage)
4
3,15
3
2
1
3,10
2,44
1,85
1,37
0,48
1,93
1,71
1,80
1,14
0,57
0,51
0,70
0,05
0
-1
-2
-1,09
G V A H ours P roduc- G V A H ours P roduc- G V A H ours P roduc- G V A H ours P roduc- G V A H ours P roducw orked tiv ity
w orked tiv ity
w orked tiv ity
w orked tiv ity
w orked tiv ity
EU-2 5
EU-1 5
EU-1 0
USA
Japan
Source: TCB (2010) and EU KLEMS (2009).
Labour productivity can grow following different patterns:
•
The USA followed a virtuous path: strong GVA growth together with employment creation
and productivity growth.
•
The EU-25 has also followed a positive path, less brilliant however, in terms of GVA and
productivity growth.
•
The New Member States had a strong GVA and productivity performance but hardly any
employment creation.
•
Japan also showed a positive rate of productivity growth but originated in employment
destruction.
[6]
Labor productivity from a long run perspective
Labour productivity. Annual rate of growth. EU-25. 1995-2009 (percentage)
Source: TCB (2010) and EU KLEMS (2009).
•
The EU-25 is made up of a heterogeneous array of countries
•
The New Member States (EU-10) are the ones that have experienced the highest
rate of productivity growth.
•
In the EU-15 Ireland had the highest rate and Italy the lowest.
[7]
Labor productivity from a long run perspective
Unit labour cost. Annual rate of growth, 1995-2009 (percentage)
5
4
3,67
3
2
1
0,69
1,93
1,74
1,73
1,91
1,04
0,47
0
-1
-1,44
-2
Eurozone-12
Unit labour cost
USA
Wages
Japan¹
Productivity
¹ 1995-2008 for this country.
Source: ECB (2010), EU KLEMS (2009) and Fundación BBVA-Ivie.
•
In the Eurozone-12 unit labor cost had a positive sign which originated in wages
growing at higher rates than productivity.
•
In the USA unit labor cost growth rates were even higher despite its strong
productivity growth, while Japan experienced an improvement in its competitiveness
thanks to the slow rate of wages growth.
[8]
2. The impact of the crisis
[9]
The impact of the crisis
GVA. Annual rate of growth. 1995-2007 and 2007-2009 (percentage)
5
4
3
3,62
3,02
2,44
2,31
2
1,34
1
0,34
0
-1
-2
-1,05
-1,65
-1,87
-3
-4
-3,13
EU-25
EU-15
EU-10
1995-2007
USA
Japan
2007-2009
Source: TCB (2010) and EU KLEMS (2009).
•
The first 3 years of the crisis hit Japan harder than the EU or the USA
•
The contraction in terms of GVA was more intense in the EU-15 than in the USA,
while the New Member states maintained a positive growth rate
[ 10 ]
The impact of the crisis
Labour (hours worked). Annual rate of growth. 1995-2007 and 2007-2009 (percentage)
5
4
3
2
1,10
0,90
0,76
1
0,10
0
-0,22
-1
-1,21
-2
-0,72
-1,41
-3
-3,00
-4
EU-25
EU-15
EU-10
1995-2007
USA
-3,35
Japan
2007-2009
Source: TCB (2010) and EU KLEMS (2009).
•
Employment destruction has been very severe in Japan and the USA
•
The EU was more in favor of labor hoarding (not in Spain!) with only minor
adjustments in the new member states aggregate.
[ 11 ]
The impact of the crisis
Labour productivity. Annual rate of growth, 1995-2007 and 2007-2009 (percentage)
5
4
3,52
3
2
1,93 1,95
1,67
2,06
1,41
1
0,57
0,23
0
-1
-0,43
-0,46
E U -25
E U -15
E U -10
1995-2007
USA
Japan
2007-2009
Source: TCB (2010) and EU KLEMS (2009).
•
The USA maintained its rate of productivity growth thanks to the intense reaction of
its labor market, while in the EU-15 it had a negative growth rate as a consequence
of labor maintenance.
•
In Japan productivity slowed down in spite of its strong labor contraction
[ 12 ]
The impact of the crisis
Labour productivity. Annual rate of growth. EU-15. 1995-2007 and 2007-2009 (percentage)
5
4
3,56
3
2,35
2,30
2,28
2
-1
1,87
1,75
1,72
1,62
1,62
1,51
0,92
1
0
2,63
1,11
0,99
0,34
-0,15
-0,45
-1,48
-2
-0,92
-1,53
0,63
0,54
0,42
-0,74
-1,25
-1,47
-1,43
-1,67
-1,85
-3
-4
Italy
Spain
Denmark
Belgium
Netherlands
France
Austria
Germany
Portugal
United Kingdom
Finland
Greece
Sweden
Ireland
1995-2007
Luxembourg
-4,29
-5
2007-2009
Source: TCB (2010) and EU KLEMS (2009).
•
[ 13 ]
All the EU-15 countries, with the only exception of Spain, have experienced a
slowdown in labor productivity. In Spain its acceleration is due to strong employment
destruction.
The impact of the crisis
Unit labour cost. Annual rate of growth. 1995-2007 and 2007-2009 (percentage)
5
4
3,50
3
2,10
2
1
0
0,22
-0,40
-1,78
2,60
-1
-2
-3
Eurozone-12
USA
1995-2007
Japan¹
2007-2009
¹ 2007-2008 for this country
Source: ECB (2010), EU KLEMS (2009) and Eurostat (2010)
•
[ 14 ]
During the first 3 years of the crisis, unit labor cost decelerated in the USA
(improving its competitiveness), while it accelerated sharply in Japan and even more
in the Eurozone.
The impact of the crisis
Unit labour cost. Annual rate of growth. 2007-2009 (percentage)
4
3
3,50
3,09
2,60 2,73
1,95
2
1,55
1
0,13
0
-0,41
-1
Eurozone-12
unit labour cost
-0,40
USA
wages
Japan¹
productivity
¹ 2007-2008 for this country
Source: ECB (2010), EU KLEMS (2009) and Eurostat (2010)
•
During the crisis the wages of employed workers rose in all countries.
•
In the Eurozone wages increased while productivity decreased, pushing up unit labor
cost and thus reducing competitiveness.
•
In the USA productivity growth was higher than wages growth, thus unit labor cost
decreased.
[ 15 ]
3. Aggregate productivity from
the industries perspective
[ 16 ]
Aggregate productivity from the industries perspective
Industries contribution to labour productivity growth. Market Economy. 1995-2007 (percentage)
Agriculture and fishing
Energy
Manufacturing
Construction
Transport and storage and
communication
Financial intermediation and
business activities
Social and personal services
¹ 1995-2006 for these areas or countries
Source: EU KLEMS (2009).
•
Manufacturing has contributed positively to labor productivity growth, especially in the
EU-10.
•
The main difference between EU-15 and USA labor productivity growth is not to be
found in Manufacturing but in the Services industries.
•
The contribution of the Construction industry was either nil or negative in all groups of
countries.
[ 17 ]
Aggregate productivity from the industries perspective
Labour productivity. Annual rate of growth. EU-15. Market Economy. 1970-1995 and 1995-2007 (percentage)
6
5,29
5
4,80
4
3
2
2,84
2,71
2,96
3,48
2,81
1,76
1,91
1,43
1,57
1
0
-0,07
-1
-2
-3
-4
Mark et Economy A griculture and
fishing
Energy
1970-1995
Manufacturing
Construction
Mark et Serv ices
1995-2007
Source: EU KLEMS (2009) .
•
The slowdown of productivity in the EU-15 in the 1995-2007 period affected all
sectors, being Construction the only one with a negative sign.
•
The growth rate of Manufacturing was higher than in Market Services.
•
The highest growth rate was shown by the Energy sector, followed by Manufacturing
and Agriculture and Fishing.
[ 18 ]
4. Sources of productivity growth:
the relevance of new technologies (ICT)
[ 19 ]
Sources of productivity growth…
Growth accounting.Labour productivity. Market Economy. 1995-2007(percentage)
Labour composition
ICT capital deepening per hour worked
Non ICT capital deepening per hour worked
TFP
¹ The EU-15ex consist of Austria, Belgium, Finland, France, Germany, Italy, Netherlands, Spain and the United Kingdom.
² 1995-2006 for this country.
Source: EU KLEMS (2009) .
The higher labor productivity growth in the USA as compared with EU-15ex had a double
origin:
•
a higher rate of ICT capital deepening and
•
a higher rate of growth of technical progress (MFP).
[ 20 ]
Sources of productivity growth…
Growth accounting.Labour productivity. Market Economy. 1995-2007(percentage)
5
4
3
2
Labour composition
ICT capital deepening per hour worked
1
Non ICT capital deepening per hour worked
0
TFP
Italy
Spain
Denmark
Germany
Belgium
France
Netherlands
Austria
United Kingdom
USA
Sweden
Finand
Ireland
-1
¹ The EU-15ex consist of Austria, Belgium, Finland, France, Germany, Italy, Netherlands, Spain and the United Kingdom.
² 1995-2006 for this country.
Source: EU KLEMS (2009) .
The countries belonging to the EU-15 that have experienced higher rates of productivity
growth are also the ones showing:
•
a higher rate of ICT capital deepening and/or
•
a higher rate of growth of technical progress (MFP).
[ 21 ]
Sources of productivity growth…
Growth accounting.Labour productivity. EU-15ex. Market Economy. 1995-2007(percentage)
4
3
Labour composition
2
ICT capital deepening per hour worked
Non ICT capital deepening per hour worked
1
TFP
0
-1
Market
Economy
Agriculture and
fishing
Energy
Manufacturing
Construction
Transport and
Financial
Social and
storage and intermediation personal services
communication and business
activities
¹ The EU-15ex consist of Austria, Belgium, Finland, France, Germany, Italy, Netherlands, Spain and the United Kingdom.
Source: EU KLEMS (2009) .
•
In the EU-15ex, Agriculture, Transport and Storage and Communication, and
Manufacturing where the industries showing the highest contribution of MFP.
•
On the contrary, the contribution of MFP was negative in Construction, Financial
Intermediation and Business Activities, and Social and Personal Services.
[ 22 ]
Sources of productivity growth…
Growth accounting. Labour productivity. USA. Market Economy. 1995-2007(percentage)
6
4
Labour composition
2
ICT capital deepening per hour worked
Non ICT capital deepening per hour
worked
0
TFP
-2
-4
Market
Economy
Agriculture and
fishing
Energy
Manufacturing
Construction
Transport and
Financial
Social and
storage and intermediation personal services
communication and business
activities
Source: EU KLEMS (2009) .
•
[ 23 ]
This is an important difference with respect to the USA where all the Services
Sectors, including Financial Intermediation and Business Activities as well as Social
and Personal Services experienced positive MFP contributions.
Sources of productivity growth…
Industry classification according to ICT assets
ICT producers
ICT non intensive users
Electrical and optical equipment
Agriculture, hunting, forestry and fishing
Post and telecommunications
Food products, beverages and tobacco
ICT intensive users
Textiles, textile products, leather and footwear
Mining and quarrying
Wood and products of wood and cork
Pulp, paper, paper products, printing and publishing
Rubber and plastics products
Coke, refined petroleum products and nuclear fuel
Other non-metallic mineral products
Chemicals and chemical products
Basic metals and fabricated metal products
Machinery, nec
Construction
Transport equipment
Sale, maintenance and repair of motor veh.
Manufacturing nec; recycling
Retail trade
Electricity, gas and water supply
Hotels and restaurants
Wholesale trade
Private households with employed persons
Transport and storage
Financial intermediation
Business activities
Other community, social and personal services
[ 24 ]
Sources of productivity growth…
Share of each grouping in GVA. Market Economy. 1995 and 2007(percentage)
100
80
60
40
20
0
1995 2007
EU-25
ICT producers
1995 2007
EU-15
1995 2006
EU-10
ICT Intensive users
1995 2007
USA
1995 2006
Japan
ICT non intensive users
Source: EU KLEMS (2009) .
•
The share of ICT producers industries is very small
•
In the USA the share of the ICT related sectors (producers and intensive users) have
a higher weight than in the other grouping of countries.
[ 25 ]
Sources of productivity growth…
Contribution of each sectoral grouping to labour productivity growth.
Market Economy, 1995-2007 (percentage)
120
100
80
60
40
20
0
EU-25
ICT producers
EU-15
EU-10¹
ICT Intensive users
USA
Japan¹
ICT non intensive users
¹ 1995-2006 for these areas or countries.
Source: EU KLEMS (2009) .
•
However, its contribution to productivity growth is much higher than its share in the
aggregate.
•
Especially in developed economies such as Japan and the USA
[ 26 ]
Sources of productivity growth…
Growth accounting. Labour productivity. Market Economy, 1995-2007 (percentage)
10
8
6
4
Labour composition
2
ICT capital deepening per hour worked
0
Non ICT capital deepening per hour
worked
-2
A
B
UE-15ex
C
A
B
USA
C
A
B
C
TFP
Japan¹
A: ICT producers; B: ICT intensive users; C: ICT non intensive users.
¹ The EU-15ex consist of Austria, Belgium, Finland, France, Germany, Italy, Netherlands, Spain and the United Kingdom
² 1995-2006 for this country.
Source: EU KLEMS (2009) .
•
The higher productivity growth rate in the ICT producing industries has its origin in its
strong MFP growth.
•
In the USA, the efficiency improvements have spilled over the ICT intensive sectors,
while in the EU-15ex and in Japan the sectors other than ICT producers have
benefited only slightly.
[ 27 ]
Conclusions
 The set of 25 countries analyzed show very different patterns, as
well as strength, of growth.
 During the expansion years the USA showed a “virtuous” profile,
combining GVA and productivity growth together with employment
creation.
 The EU-15 had a much modest profile, while the EU-10 benefited
from both its initial laggard position and its integration in the EU.
The consequences of the economic crisis
 The recent crisis starting in 2007 hit the geographical areas with
different intensity. Japan was the country experiencing the highest
GVA contraction, followed by the EU-15.
 Labor markets also responded different. The USA adjusted sharply
to the change of the cycle, while the EU opted for hoarding labor.
 As a consequence, the USA maintained its previous productivity
growth rate, while in the EU-15 it became negative.
[ 28 ]
Conclusions
 Spain was the only EU-15 country that experienced a positive labor
productivity acceleration in 2007-2009 originating in its strong
employment destruction.
 Wages of employed people kept growing during the crisis, pushing
up the unit labor cost in the Eurozone and Japan but not in the USA.
As a consequence, the USA has gained competitiveness during
those years.
The importance of the industry's disaggregation
 Manufacturing has been an important source of productivity growth
in all countries, especially in the New Member States
 However, what makes the difference between the USA and EU are
not the Manufacturing industries but the Services Sectors.
 Growth in all countries has been driven by ICT capital deepening
and MFP growth.
[ 29 ]
Conclusions
 In the EU-15 and the USA the MFP growth was especially intense in
Agriculture, Manufacturing and Transport and Communication.
 However, while in the USA all the Services Sectors showed a
positive contribution of MFP in the EU it was strongly negative.
ICT and productivity growth
 ICT producing industries have a small share in the aggregate but its
contribution to productivity growth is very relevant, especially in the
most developed countries.
 ICT producing industries have experienced a strong MFP growth in
the EU-15ex, USA and Japan.
 However, there is an important difference. While in the USA its
positive effects spilled over the other sectors of the economy
(especially the intensive users), in the UE-15 its positive effects
restricted to only the ICT producers.
[ 30 ]
Productivity in Europe.
From the expansion to the crisis
Matilde Mas
University of Valencia and Ivie
World KLEMS Conference. Break Out Session: Europe
Harvard, August 20, 2010
[ 31 ]