Sweden and Spain: two contrasting growth
experiences
Matilde Mas
University of Valencia and Ivie
Productivity Conference at Saltsjöbaden
Stockholm
October 5-6, 2011
[1]
Sweden and Spain: two contrasting growth experiences
Objectives of the paper:
• Contrast the growth experiences of the two countries along the
period 1970-2009.
• Questions:
• Why is Sweden per capita income higher?
• Which are the sources of growth in the two countries?
• What are the characteristics of the industrial specialization?
Index:
[2]
OVERVIEW
GROWTH EXPERIENCES
INDUSTRY SPECIALIZATION
CONCLUSIONES
OVERVIEW
[3]
Overview
Spain and Sweden per capita income gap: how has it
evolved? A useful decomposition:
G VA
P

G VA H
H
L LF
L LF P
GVA/P: Per capita income
GVA/H: Labour Productivity
H/L: number of hour worked per employed person
L/LF: employment rate
LF/P: activity rate (in terms of total population)
GVA: Gross Value Added
P: total Population
H: Total hours worked
L: total employment (persons)
LF: Labour Force
[4]
Overview
c) Hours worked per employed person (H/L).
d) Employment rate (L/LF).
Hours
Percentages
100
1950
1900
95
1850
1800
GVA per capita and its components
Figure 1 . GVA per capita and its components
90
1750
a) GVA per capita.
b) Labour productivity.
1995 euros PPP per inhabitant
1995 euros PPP per hour
1700
85
1650
40
40
1600
35
35
1550
30
30
1500
80
75
1970
25
25
20
20
15
15
10
10
5
5
1975
1980
1985
1990
1995
2000
2005 2009
1970
1975
1980
e) Activity rate (LF/P).
Percentages
60
0
55
0
1970
1975
1980
1985
1990
1995
2000
2005 2009
1970
1975
1980
1985
1990
1995
2000
2005 2009
50
c) Hours worked per employed person (H/L).
d) Employment rate (L/LF).
Hours
Percentages
45
40
100
1950
1900
35
95
1850
30
1800
90
1970
1750
1700
85
1975
1980
S weden
1985
1990
S pain
1650
1600
80
Source : AMECO (2011), T CB (2011), EU KLEMS (2009) and own calculations
1550
75
1500
1970
1975
1980
1985
1990
1995
2000
e) Activity rate (LF/P).
2005 2009
1970
1975
1980
1985
Source: AMECO (2011),Percentages
TCB (2011), EU KLEMS (2009) and own calculations.
60
55
50
45
[5]
40
1990
1995
2000
2005 2009
1995
2000
2005 2009
EU-15
1985
1990
1995
2000
Overview
• Sweden’s per capita income has always been higher than
the EU average with this difference increasing in the last
years of expansion.
• On the contrary, per capita income was lower in Spain
and this difference has maintained along the period.
• The gap between Sweden and Spain originated in
Sweden’s higher labor productivity, as well as its higher
rate of employment and rate of activity.
• Spain only overtakes Sweden in the number of hours
worked.
• Thus, Spanish workers work more hours, are less
productive and support a higher percentage of dependent
population.
[6]
Overview
Real GVA per capita decomposition. Sweden minus Spain
(GVA per capita differences = 100)
1980
1995
2000
2005
2009
46,20
30,38
64,88
85,82
63,76
-43,53
-15,01
-14,72
-10,10
-8,20
Employment rate
22,56
32,64
17,50
3,90
28,20
Activity rate
74,77
52,00
32,34
20,37
16,24
100,00
100,00
100,00
100,00
100,00
Labour productivity
Hours worked by employed person
GVA per capita
Source: AMECO (2011), TCB (2011), EU KLEMS (2009) and own calculations.
• Labour productivity has been one of the main determinants of per capita
income differences.
• The other key factor is the activity rate.
• The Spanish unemployment rate had a negative effect on its relative per
capita income during the whole period.
• Thus, Spain has a serious problem in almost all relevant variables that affect
per capita GDP.
[7]
Overview
Table 2. Real GVA, employment (hours worked) and labour productivity. Total economy
Real GVA, employment (hours worked) and labour productivity. Total economy
(Annual rates of growth in %)
(Annual rates of growth in %)
1970-2009
1970-1995
1995-2009
1995-2007
2007-2009
Sweden
Spain
Sweden
Spain
Sweden
Spain
Sweden
Spain
Sweden
Spain
Real GVA
2.02
2.86
1.97
2.89
2.11
2.81
2.97
3.52
-3.05
-1.47
Employment (hours worked)
0.31
1.71
0.76
2.10
0.27
1.70
0.00
2.89
0.38
1.73
2.11
0.70
0.62
2.35
2.98
0.54
-1.06
-1.98
-3.14
1.67
Labour productivity
Source:
(2011),
EU KLEMS
(2009) and
own calculations
Source:TCB
TCB
(2011),
EU KLEMS
(2009)
and own calculations.
• During 1970-2009, Spain showed a more dynamic behaviour.
• Both countries faced difficulties in creating jobs between 1970-1995.
• In 1995-2007, Spain experienced a productivity slowdown while in Sweden
productivity accelerated.
• Thus, Spain enjoyed its highest rate of labour productivity growth in 19701995 and in 2007-2009, precisely when it was unable to create employment.
• For Sweden, the golden years of productivity growth were 1995-2007.
• During the first two years of crisis while Sweden opted for labour hoarding,
Spain took the alternative path of strong labour destruction mainly -though not
exclusively- in the over dimensioned construction industry.
[8]
TWO CONTRASTING GROWTH EXPERIENCES
[9]
4
Figure 2. Value2 adde d, hours worke d and labour productivity growth. 1970-1995
and 1995-2007 0
Two contrasting growth experiences
(Percentages)
-2
Gross value added. 1970-1995 and 1995-2007
a) Gross value -6added
(percentages) -8
-4
18
TOT
ELECOM
MaxElec
OtherG
DISTR
FINBU
PERS
NONMAR
Agriculture
Construction
c) Labour productivity
16
16
14
14
12
12
10
10
8
8
6
6
4
4
2
0
2
-2
0
TOT
TOT
ELECOM
b) Hours worked
10
ELECOM
MaxElec
MaxElec
OtherG
OtherG
DISTR
DISTR
1995-2007
Sweden
FINBU
FINBU
PERS
NONMAR
PERS
Agriculture
Construction
NONMAR
Agriculture
Construction
1970-1995
Spain
Sweden
Spain
Note:
8 TOT=Total industries; ELECOM=Electrical machinery, post and communication services; MaxElec=Total manufacturing, excluding electrical;
OtherG=Other production; DIST=Distribution; FINBU=Finance and business, except real estate; PERS=Personal services; and NONMAR=Non-market services.
6
T OTand
=T otown
al industries;
ELECOM=Elect rical machinery, post and communication services; MaxElec=T otal
Source:
EU KLEMSNote:
(2009)
calculations.
4
manufacturing, excluding electrical; OtherG=Ot her product ion; DIST =Distribut ion; FINBU=Finance and business, except real
est ate; P ERS=P ersonal services; and NONMAR=Non-market services.
Source: EU KLEMS (2009) and own caculat ions.
• Spain
outperformed Sweden in terms of GVA growth at the aggregated level
2
but
0 with important differences among industries.
-2
• Sweden
showed a much more dynamic behaviour in the ICT production
-4
sectors
(ELECOM).
[ 10 -6]
2
6
0
4
Two contrasting growth experiences
-2
2
-4
0
-6
TOT worked.
ELECOM1970-1995
MaxElec
DISTR
Hours
andOtherG
1995-2007
-8
(percentages)
b) Hours worked
TOT
ELECOM
MaxElec
FINBU
OtherG
DISTR
PERS
FINBU
PERS
NONMAR
NONMAR
Agriculture
Agriculture
Construction
Construction
c) Labour productivity
10
16
8
14
6
12
4
10
2
8
0
6
4
-2
2
-4
0
-6
-2
TOT
-8
TOT
ELECOM
ELECOM
MaxElec
MaxElec
OtherG
OtherG
DISTR
DISTR
FINBU
FINBU
PERS
PERS
1995-2007
c) Labour productivity
Sweden
16
NONMAR
Agriculture
NONMAR
Construction
Agriculture
Construction
1970-1995
Sweden
Spain
Spain
Note: TOT=Total industries; ELECOM=Electrical machinery, post and communication services; MaxElec=Total manufacturing, excluding electrical;
OtherG=Other production; DIST=Distribution; FINBU=Finance and business, except real estate; PERS=Personal services; and NONMAR=Non-market services.
12
Source: EU KLEMSNote:
(2009)
and own calculations.
T OT =T ot al industries; ELECOM=Elect rical machinery, post and communication services; MaxElec=T otal
14
10
manufacturing, excluding electrical; OtherG=Ot her product ion; DIST =Distribut ion; FINBU=Finance and business, except real
est ate; P ERS=P ersonal services; and NONMAR=Non-market services.
Source: EU KLEMS (2009) and own caculat ions.
• The
ability of the Spanish economy to create new jobs was astonishing after
8
25
years of almost null labour creation (its destruction since the beginning of
6
the
current crisis is also astonishing).
4
2
• While
Sweden destroyed employment in ELECOM, Spain increased it.
0
• -2The most noticeable difference is the employment rate of growth in the
construction industry.
TOT
[ 11 ]
ELECOM
MaxElec
OtherG
DISTR
FINBU
PERS
NONMAR
Agriculture
Construction
-2
2
-4
0
Two contrasting growth experiences
-6
-2
-8
-4
-6
Labour productivity.
1970-1995 and 1995-2007
-8
c) Labour productivity
(percentages)
TOT
ELECOM
MaxElec
TOT
16
OtherG
ELECOM
MaxElec
DISTR
OtherG
DISTR
FINBU
FINBU
PERS
PERS
NONMAR
NONMAR
Agriculture
Agriculture
Construction
Construction
c) Labour productivity
16
14
14
12
12
10
10
8
8
6
6
4
4
2
2
0
0
-2
TOT
-2
TOT
ELECOM
ELECOM
MaxElec
MaxElec
OtherG
OtherG
DISTR
DISTR
1995-2007
1995-2007 Sweden
FINBU
FINBU
PERS
PERS
NONMAR
Agriculture
NONMAR
Construction
Agriculture
Construction
1970-1995
Spain
Sweden
1970-1995 Spain
Note: TOT=Total industries; ELECOM=Electrical machinery, post and communication services; MaxElec=Total manufacturing, excluding electrical;
Sweden
OtherG=Other production;
DIST=Distribution; FINBU=Finance
and business, except real estate;
PERS=Personal services;Spain
and NONMAR=Non-market services.
Sweden
Spain
Source: EU KLEMS (2009) and own calculations.
Note: T OT =T ot al industries; ELECOM=Elect rical machinery, post and communication services; MaxElec=T otal
manufacturing, excluding electrical; OtherG=Ot her product ion; DIST =Distribut ion; FINBU=Finance and business, except real
est ate; P ERS=P ersonal services; and NONMAR=Non-market services.
Source: EU KLEMS (2009) and own caculat ions.
• Whereas in Spain labour productivity growth decelerated in the expansion
Not e: T OT
=T ot al indust
ELECOM=Electit
rical
machinery, post and communicat ion services; MaxElec=T ot al
years,
inries;Sweden
accelerated.
manufact uring, excluding elect rical; Ot herG=Ot her product ion; DIST =Dist ribut ion; FINBU=Finance and business, except real
est at e; P ERS=P ersonal services; and NONMAR=Non-market services.
• In all industry aggregations labour productivity growth was higher in Sweden
Source: EU KLEMS (2009) and own caculat ions.
than in Spain.
• The most significant differences were found in ELECOM, Agriculture,
MaxElec and Distribution.
[ 12 ]
Two contrasting growth experiences
Contributions to labour productivity growth. 1995-2007
(percentages)
a) Sweden
MARKT
ELECOM
MaxElec
OtherG
DISTR
FINBU
PERS
Agriculture
Construction
1. Labour productivity growth (=2+3+6)
3,31
14,24
3,84
0,82
3,12
1,48
0,79
4,87
-0,18
2. Labour composition change
0,26
0,53
0,29
0,15
0,23
0,31
0,05
0,24
0,16
3. Capital contribution (=4+5)
1,53
1,99
1,90
0,93
1,63
1,40
0,45
0,84
0,30
4. ICT capital per hour
0,57
0,67
0,48
0,08
0,60
0,80
0,22
0,04
0,04
5. Non-ICT capital per hour
0,96
1,32
1,42
0,85
1,03
0,60
0,23
0,80
0,26
1,52
11,72
1,65
-0,26
1,26
-0,24
0,29
3,78
-0,64
MaxElec
OtherG
DISTR
FINBU
6. MFP
b) Spain
MARKT
ELECOM
PERS
Agriculture
Construction
1. Labour productivity growth (=2+3+6)
0,63
3,07
0,83
0,28
0,85
1,51
-0,88
2,42
-1,81
2. Labour composition change
0,38
0,55
0,45
0,27
0,41
0,43
0,28
0,28
0,31
3. Capital contribution (=4+5)
0,86
3,08
0,71
0,11
1,42
0,52
1,16
1,12
0,06
4. ICT capital per hour
0,38
1,42
0,27
0,10
0,50
0,57
0,25
0,01
0,12
5. Non-ICT capital per hour
6. MFP
0,48
1,66
0,44
0,01
0,92
-0,05
0,92
1,11
-0,06
-0,61
-0,56
-0,33
-0,10
-0,98
0,55
-2,33
1,02
-2,18
Note: MARKT=Market economy; ELECOM=Electrical machinery, post and communication services; MaxElec=Total manufacturing, excluding electrical;
OtherG=Other production; DIST=Distribution; FINBU=Finance and business, except real estate and PERS=Personal services.
Source: EU KLEMS (2009) and own calculations.
[ 13 ]
Two contrasting growth experiences
• In 1995-2007 labour productivity growth was very high in
Sweden (3.3%) and very low in Spain (0.63%).
• TFP contributions were the most divergent drivers of
growth.
• In Spain, the highest contribution came from non-ICT
capital deepening while in Sweden was TFP.
• ICT capital deepening also made a positive contribution in
both countries but with less intensity in Spain than in
Sweden.
• Followed closely by the contribution of labour composition
changes, especially in the Spanish case.
[ 14 ]
INDUSTRY SPECIALIZATION
[ 15 ]
INDUSTRY SPECIALIZATION
Four questions:
1. In which country is production more diversified?
2. In which country is the sectoral composition of output
more different from the EU-15 average?
3. Are the differences in productivity growth due to a
redistribution of factors towards industries with higher
productivity levels or/and higher productivity growth
(structural change effect) or is it a consequence of an
overall pattern of productivity growth at industrial level
(within-industry effect)?
4. Are the differences between pairs of countries due to a
country effect (the differences occurred even without any
difference in the industrial specialization) or to a total
specialization effect (which captures the impact of the
different specialization)?
[ 16 ]
INDUSTRY SPECIALIZATION
GVA
sectoral dispersion
Figure 3. GVA s e ctoral dis pe rs ion
(Coefficientofofvariation
variationof
ofGVA
GVA sectoral
sectoral share
(coefficient
shareinintotal)
total)
1.00
0.95
0.90
0.85
0.80
0.75
0.70
0.65
0.60
0.55
0.50
1970
1975
1980
Sweden
1985
1990
Sp ain
1995
2000
2007
EU-15
Source:
KLEMS
(2009)
and own
SourceEU
: EU
KLEMS
(2009)
andcalculations.
own calculat ions
• The dispersion of output among the different industries used to be less
pronounced in Spain than in Sweden and the EU-15 aggregate.
• However, by the end of the period the three converged.
[ 17 ]
INDUSTRY SPECIALIZATION
2. In which country is the sectoral composition of output more
different from the EU-15 average?
SPAIN
Figure 4. Inde x of diffe re nce s in se ctoral compos ition
Index
of differences in sectoral composition
(GVA percentages)
(GVA percentages)
N
1
L

X

X
*
1
0
0

A
B
j
A
j
B
2
j
1
30
25
20
15
10
5
1970
1975
1980
Sweden/EU-15
Source: EU KLEMS (2009) and own calculations.
Source : EU KLEMS (2009) and own calculat ions
[ 18 ]
1985
1990
Spain/EU-15
1995
2000
Sweden/Spain
2007
INDUSTRY SPECIALIZATION
Four questions:
1. In which country is production more diversified?
2. In which country is the sectoral composition of output
more different from the EU-15?
3. Are the differences in productivity growth due to a
redistribution of factors towards industries with higher
productivity levels or/and higher productivity growth
(structural change effect) or is it a consequence of an
overall pattern of productivity growth at industrial level
(within-industry effect)?
4. Are the differences between pairs of countries due to a
country effect (the differences occurred even without any
difference in the industrial specialization) or to a total
specialization effect (which captures the impact of the
different specialization)?
[ 19 ]
INDUSTRY SPECIALIZATION
YT

LT
Y
Y
J
0
L0

  j 0 
jT
 L jT
j 1

Y
j0
Lj0

 

J

  jT   j 0 
j 1
Y
J
j0
Lj0

 
jT
j 1
S t a t ic effect
W it h in -in d u st r y effect
 Y jT
Y j0
 j0  

L
Lj0
 jT



D y n a m ic effect
S t r u ct u r a l ch a n ge effect
Table 5. Decomposition
of productivitygrowth.
growth. Shift-share
analysis
Decomposition
of productivity
Shift-share
analysis
(Annual average growth rates, in %)
(annual average growth rates, in %)
a) Sweden
1970-1995
1995-2007
Total effect
1.70
2.35
Within-industry effect
1.44
2.76
Structural change effect
0.26
-0.41
1970-1995
1995-2007
Total effect
2.89
0.54
Within-industry effect
2.35
0.62
Structural change effect
0.54
-0.07
1970-1995
1995-2007
Total effect
2.63
1.42
Within-industry effect
2.20
1.51
Structural change effect
0.43
-0.09
b) Spain
c) EU-15
Source: EU KLEMS (2009) and own calculations
Source: EU KLEMS (2009) and own calculations.
[ 20 ]
• The main source of
productivity growth is always
the “within-industry effect”.
That is, the one obtained
because of the internal
productivity improvements in
each industry
INDUSTRY SPECIALIZATION
Four questions:
1. In which country is production more diversified?
2. In which country is the sectoral composition of output
more different from the EU-15?
3. Are the differences in productivity growth due to a
redistribution of factors towards industries with higher
productivity levels or/and higher productivity growth
(structural change effect) or is it a consequence of an
overall pattern of productivity growth at industrial level
(within-industry effect)?
4. Are the differences between pairs of countries due to a
country effect (the differences occurred even without any
difference in the industrial specialization) or to a total
specialization effect (which captures the impact of the
different specialization)?
[ 21 ]
INDUSTRY SPECIALIZATION
YA
LA

YB
 Y jA Y jB
  jB  L  L
j 1
jB
 jA
J

LB

 

J

  jA   jB
j 1

Y
J
jB

L jB
 
j 1
jA
 Y jA Y jB
  jB  

L
L jB
 jA
S p ecia liza t ion effect
C ou n t r y effect



A lloca t ion effect
T ot a l S p ecia liza t ion effe ct
Shift-share analysis
growth. Shift-share
of productivity
6. Decomposition
Table
Decomposition
of productivity
growth.
analysis
(Percentages)
(percentages)
a) Sweden vs. EU-15
1970
1995
2007
Total effect
31.37
4.01
16.27
Country effect
19.20
-2.49
11.91
Total specialization effect
12.17
6.50
4.36
1970
1995
2007
-12.69
-6.93
-16.23
14.86
3.42
-11.12
-27.55
-10.36
-5.11
1970
1995
2007
-33.54
-10.52
-27.96
11.93
18.59
-19.12
-45.47
-29.11
-8.84
b) Spain vs. EU-15
Total effect
Country effect
Total specialization effect
c) Spain vs. Sweden
Total effect
Country effect
Total specialization effect
Source: EU KLEMS (2009) and own calculations
Source: EU KLEMS (2009) and own calculations.
[ 22 ]
• Sweden’s productivity has
been always higher than Spain
and EU-15 average, while
Spain’s has been lower.
• The impact of the country
effect and the specialization
effect has been changing
along the period.
FINAL REMARKS
• The overall picture is that Spain lags behind Sweden in almost all variables.
• Spain´s per capita income is lower than Sweden as a consequence of its
lower productivity growth, in adition to its lower employment and activity rates.
Spain only outperforms Sweden in the number of hours worked by employed
person.
• Concerning productivity, the problem of the Spanish economy is not, or is not
only, the result of its specialization in sectors with low productivity gains but it
is a more general problem that affects all industries.
• This, together with the negative MFP contributions, indicates a problem in the
fuctioning of the Spanish economy.
• Its comparison with Sweden highlights the distance between the two countries
and the importance of the problems faced.
• But it also indicates that a better functioning of the Spanish economy is
feasible.
[ 23 ]