Post on 21-May-2020
The EU Productivity GapMatilde Mas
Universitat de València and Ivie
Open Session Round Table:
The Future of Europe from an International Perspective
Madrid May 24th, 2016
This project has received funding from the European Union’s Seventh Framework Programme for
research, technological development and demonstration under grant agreement No. 612774
Labour Productivity growth is key for per capita income growth“Productivity isn’t everything, but in the long run it is almost everything”.- Paul Krugman
y = 1,01x + 0,21R² = 0,90
-1
0
1
2
3
4
5
6
-1 0 1 2 3 4 5 6Per
cap
ita
inco
me
grow
th (
perc
enta
ge),
195
0-2
014
Labour productivity growth (percentage), 1950-2014
Labour productivity and per capita income, 1950-2014Figure 1. Labour productivity and per capita income, 1950-2014
Source: Total Economy Database, May 2015 (TCB)
3
The EU should aim at improving its Labour Productivity
Figure 1. Labour productivity. EU and non-EU countries, average 1995-2015
(Thousands of 2014 US$)
104.7
91.788.4
81.076.2 75.0
68.5
56.4
39.8
26.8
10.3 8.7
0
20
40
60
80
100
120
US
Sw
itzer
land
Aus
tral
ia
Can
ada
EU
Tai
wan
Japa
n
Kor
ea
Rus
sia
Bra
zil
Chi
na
Indi
a
Average = 29.6
Source: Total Economy Database, May 2015 (TCB)
4
Figure 2. Labour productivity growth. EU and Non-EU countries, 1995-2015
(annual rates in percentages)
Source: Total Economy Database, May 2015 (TCB)
5.80
5.00
3.07 2.872.45
1.59
1.27 1.12 0.96 0.92 0.82 0.67
0
2
4
6
8
Chi
na
Indi
a
Kor
ea
Tai
wan
Rus
sia
US
Aus
tral
ia
EU
Can
ada
Japa
n
Sw
itzer
land
Bra
zil
Average = 1.9%
The rate of growth of labour productivity (LP) in the EU
has been…modest
5
Figure 3. Labour productivity growth. EU and Non-EU countries, 1995-2015
(annual rates in percentages)
The rate of growth of labour productivity (LP) in the EU
has been…modest
Source: Total Economy Database, May 2015 (TCB)
6
Figure 3. Labour productivity growth. EU and Non-EU countries, 1995-2015
(annual rates in percentages)
Source: Total Economy Database, May 2015 (TCB)
The rate of growth of labour productivity (LP) in the EU
has been…modest
7
Figure 3. Labour productivity growth. EU and Non-EU countries, 1995-2015
(annual rates in percentages)
The rate of growth of labour productivity (LP) in the EU
has been…modest
Source: Total Economy Database, May 2015 (TCB)
8
Figure 3. Labour productivity growth. EU and Non-EU countries, 1995-2015
(annual rates in percentages)
The rate of growth of labour productivity (LP) in the EU
has been…modest
Source: Total Economy Database, May 2015 (TCB)
LP growth have been lower in the EU than in other leading countries…
Figure 2: Productivity. Dynamics of other economies’ differences vs the EU28 average.
2006 and 2013. (Thousands of 2010 euros PPS)
a) Total economy
Note: EU28 aggregated labour productivity in 2006 = 56.4; in 2013 = 57.8. EU28 manufacturing labour productivity in 2006 = 52.4; in 2013 = 57.7. EU28 services
labour productivity in 2006 = 52; in 2013 = 52.9. Latest available data for Canada and Japan corresponds to 2012.
Source: PREDICT database elaborated by Ivie and JRC-IPTS
Lower than EU28 average & Converging
II
Higher than EU28 average & Diverging
IV
-80
-60
-40
-20
0
20
40
60
80
100
120
India China Russia Korea Japan Canada Taiwan Australia United States
20132006
Dif
fere
nce
Oth
er e
cono
mie
s -E
U a
vera
ge (t
hou
sand
so
f 201
0 e
uros
PPS
)Higher than EU28 average
& Converging
II
In Manufacturing the gap decreased with respect to 3 countries…Figure 2 (cont.): Productivity. Dynamics of other economies’ differences vs the EU28
average. 2006 and 2013. (Thousands of 2010 euros PPS)
b) Manufacturing
Note: EU28 aggregated labour productivity in 2006 = 56.4; in 2013 = 57.8. EU28 manufacturing labour productivity in 2006 = 52.4; in 2013 = 57.7. EU28 services
labour productivity in 2006 = 52; in 2013 = 52.9. Latest available data for Canada and Japan corresponds to 2012.
Source: PREDICT database elaborated by Ivie and JRC-IPTS
Lower than EU28 average & Converging
II
Higher than EU28 average & Diverging
IV
-80
-60
-40
-20
0
20
40
60
80
100
120
India Australia China Russia Canada Japan Taiwan Korea United States
20132006
Dif
fere
nce
Oth
er e
cono
mie
s -E
U a
vera
ge (t
hou
sand
so
f 201
0 e
uros
PPS
)
Lower than EU28 average & Diverging
I
Higher than EU28
average & Converging
III
…but in Services, all countries have performed betterFigure 2 (cont.): Productivity. Dynamics of other economies’ differences vs the EU28
average. 2006 and 2013. (Thousands of 2010 euros PPS)
c) Services
Note: EU28 aggregated labour productivity in 2006 = 56.4; in 2013 = 57.8. EU28 manufacturing labour productivity in 2006 = 52.4; in 2013 = 57.7. EU28 services
labour productivity in 2006 = 52; in 2013 = 52.9. Latest available data for Canada and Japan corresponds to 2012.
Source: PREDICT database elaborated by Ivie and JRC-IPTS
Lower than EU28 average & Converging
II
Higher than EU28 average & Diverging
IV
20132006
Dif
fere
nce
Oth
er e
cono
mie
s -E
U a
vera
ge (t
hou
sand
so
f 201
0 e
uros
PPS
)
-80
-60
-40
-20
0
20
40
60
80
100
120
India China Russia Korea Canada Japan Australia Taiwan United States
Higher than EU28 average & Converging
III
12
The leadership of the US in LP with respect to the EU has
widened during the 2006-2013 period in all industries but two
ICT industries
1 Manufacture of electronic components and
boards [261]
2 Manufacture of computers and peripheral
equipment [262]
3 Manufacture of communication equipment
[263]
4 Manufacture of consumer electronics [264]
5 Telecommunications [61]
6 Computer and related activities [5820, 62,
631, 951]
Non-ICT industries
7 Manufacture of chemicals and chemical
products [20]
8 Manufacture of pharmaceuticals, medicinal
chemical and botanical products [21]
9 Manufacture of machinery and equipment
[27-28]
10 Manufacture of motor vehicles, trailers and
semi-trailers [29]
11 Manufacture of other transport equipment
[30]
12 Transportation and storage [49-53]
13 Information and communication [58-63,
except Computer and related activities]
14 Financial and insurance activities [64-63]
15 Professional, scientific and technical
activities [69-75]
16 Administration and support service
activities [76-82]
17 Education [85]
18 Human health and social work activities [86-
88]
Figure 4. Productivity. Dynamics of US-EU differences by industry. 2006 and 2013
(Thousands of 2010 euros PPS)
0
50
100
150
200
250
20132006
12 2 17 16 9 15 14 10 6 11 4 5 13 1 7 3 8
Dif
fere
nce
by in
dust
ry U
S -E
U a
vera
ge (
thou
sand
s o
f 201
0 e
uros
PPS
)
18
Higher than EU average & Diverging
IV
Higher than EU average & Converging
III
(Thousands of 2010 euros PPS)
Note: ICT sectors marked in bold. The codification of industries can be found in the box to the left (NACE Rev. 2 codes in brackets ). Source: PREDICTdatabase elaborated by Ivie and JRC-IPTS
13
MFP contribution was negative in the 5 big EU countries.
Figure 6. Contributions to GDP growth, 2007-2012
(Percentages)
-3
-2
-1
0
1
2
France Germany Italy Spain UK US
ICT capital Non-ICT capital Hours worked Labour composition TFP GDP
Source: APO, EU KLEMS, Jorgenson and Vu (2016), TCB and own elaboration
14
Warning: There is not an homogenous EU
There are several potential factors
- Lack of flexibility of the EU labour markets
long-term uneployment; temporary employment;…
- Accumulation of capital during the boom years (excess capacity affecting productivity of capital)
- Regulations (some of them under discussion with TTIP)
- Lack of competition (roaming; collusive agreements; …)
- Size and flexibility (in and out) of firms
- Directive on Services in the internal market and its trasposition
-
Endowments of Intangible Assets
o R&D
o Other Intangible Assets: Organizational Capital and Training
What might be the sources of EU disappointing performance?
15
Intangibles and Growth
• Empirical evidence shows a strong correlation between intangibles and LP
growth (Corrado, Haskel, Jona-Lasinio and Iommi (2013)). Fernández de
Guevera and Mas (2016) making use of the Spanish data disaggregated by
industries.
• Corrado, Haskel and Jona-Lasinio (2014) also find:
I. a complementary relation between ICT and intangible capital.
II. significant spillovers of intangible capital.
• These results are not confirmed (at least not yet) for the Spanish
disaggregated data.
16
US outperforms the EU in both, market and non-market GFCF in
intangibles.
Marked heterogeneity of EU15 countries. Sweden and UK in the first
positions. The four peripheral countries at the low end.
Figure 7. Share of GFCF on intangible assets over total GDP. EU15 and US. Average 2006-
2010 (percentages)
Source: Eurostat, INTAN-Invest, SPINTAN and own elaboration.
a) Market sector b) Non-market sector
10.8
8.4 8.37.5 7.4 7.3 7.1 6.9 6.8
6.3 6.3 6.2 6.1 6.05.2
4.5 4.5 4.3
2.1
0
2
4
6
8
10
12
Uni
ted
Sta
tes
Sw
eden
Uni
ted
Kin
gdom
Bel
gium
Den
mar
k
Fra
nce
Fin
land
Slo
veni
a
Net
herla
nds
EU
15
Cze
ch R
epub
lic
Ger
man
y
Aus
tria
Luxe
mbo
urg
Irel
and
Spa
in
Por
tuga
l
Italy
Gre
ece
EU15 average = 6.3%
2.5
1.6
1.3
1.1 1.10.9 0.9 0.9 0.9 0.9 0.8 0.8 0.7 0.7 0.7
0.60.4
0.2 0.2
0.0
0.5
1.0
1.5
2.0
2.5
3.0
Uni
ted
Sta
tes
Sw
eden
Uni
ted
Kin
gdom Ita
ly
Net
herla
nds
Aus
tria
Por
tuga
l
Fin
land
EU
15
Bel
gium
Cze
ch R
epub
lic
Ger
man
y
Irel
and
Fra
nce
Den
mar
k
Slo
veni
a
Spa
in
Gre
ece
Luxe
mbo
urg
EU15 average = 0.9%
17
Figure 8. BERD intensity (BERD/GDP) and GBAORD/GDP. EU and Non-EU countries, average
2006-2013
(Percentages)
The US presents higher BERD (business) and GBAORD
(public) intensity than the EU28
Source: PREDICT database elaborated by Ivie and JRC-IPTS
a) BERD/GDP b) GBAORD/GDP
18
The gap with the US is higher in the non-market sector
Figure 8. Share of GFCF on R&D over total GDP. EU15 and US. Average 2006-2010
(percentages)
Source: Eurostat, INTAN-Invest, SPINTAN and own elaboration.
a) Market sector b) Non-market sector
2.21 2.15
1.97
1.63 1.591.45
1.13 1.12 1.09 1.06 1.00
0.830.75 0.75
0.63 0.61 0.54 0.51
0.14
0.0
0.5
1.0
1.5
2.0
2.5
Sw
eden
Fin
land
Uni
ted
Sta
tes
Ger
man
y
Aus
tria
Den
mar
k
Fra
nce
Luxe
mbo
urg
Bel
gium
EU
15
Slo
veni
a
Uni
ted
Kin
gdom
Cze
ch R
epub
lic
Net
herla
nds
Irel
and
Spa
in
Italy
Por
tuga
l
Gre
ece
EU15 average = 1.06%
0.94
0.80
0.61
0.520.46
0.40 0.37 0.370.31 0.29
0.260.22
0.19 0.18 0.160.11
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
Uni
ted
Sta
tes
Sw
eden
Aus
tria
Por
tuga
l
Italy
Cze
ch R
epub
lic
Den
mar
k
Fin
land
Ger
man
y
EU
15
Bel
gium
Net
herla
nds
Uni
ted
Kin
gdom
Fra
nce
Spa
in
Slo
veni
a
EU15 average = 0.29%
19
UK leads the ranking of GFCF on organisational capital over
GDP in the market sector and the US in the non-market.
Figure 9. Share of GFCF on organisational capital over total GDP. EU-15 and US.
Average 2006-2010 (percentages)
Source: Eurostat, Intan-INVEST, SPINTAN and own elaboration.
a) Market sector b) Non-market sector
2.9
2.4 2.32.1
1.91.8
1.6 1.61.5 1.5 1.4 1.4 1.3 1.3
1.0 1.0 0.90.7
0.00.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
Uni
ted
Kin
gdom
Uni
ted
Sta
tes
Bel
gium
Net
herla
nds
Fra
nce
Sw
eden
Slo
veni
a
EU
15
Aus
tria
Por
tuga
l
Fin
land
Irel
and
Cze
ch R
epub
lic
Ger
man
y
Luxe
mbo
urg
Italy
Den
mar
k
Spa
in
Gre
ece
EU15 average = 1.6%
0.4
0.30.2
0.2
0.1 0.10.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1
0.00.0 0.0
0.0
0.1
0.1
0.2
0.2
0.3
0.3
0.4
0.4
0.5
Uni
ted
Sta
tes
Bel
gium Ita
ly
Net
herla
nds
Fra
nce
Sw
eden
Gre
ece
EU
15
Irel
and
Fin
land
Aus
tria
Uni
ted
Kin
gdom
Den
mar
k
Por
tuga
l
Slo
veni
a
Cze
ch R
epub
lic
Ger
man
y
Spa
in
Luxe
mbo
urg
EU15 average = 0.1%
20
In training GFCF Denmark (followed by the US) takes the
leading role in the market sector and the UK in non-market. US
is above the EU15 average.
Figure 10. Share of GFCF on training over total GDP. EU-15 and US. Average 2006-2010
(percentages)
Source: Eurostat, INTAN-Invest, SPINTAN and own elaboration.
1.3
1.1
1.00.9 0.9
0.8 0.80.8 0.8 0.7
0.7
0.6 0.5 0.5 0.5 0.5
0.4 0.4
0.00.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
Den
mar
k
Uni
ted
Sta
tes
Uni
ted
Kin
gdom
Fra
nce
Ger
man
y
Net
herla
nds
Luxe
mbo
urg
EU
15
Aus
tria
Irel
and
Sw
eden
Slo
veni
a
Cze
ch R
epub
lic
Italy
Bel
gium
Fin
land
Por
tuga
l
Spa
in
Gre
ece
EU15 average = 0.8%
0.8
0.5
0.4
0.30.3
0.2 0.2 0.20.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.0 0.0 0.0
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
Uni
ted
Kin
gdom
Irel
and
Uni
ted
Sta
tes
Ger
man
y
EU
15
Cze
ch R
epub
lic
Bel
gium
Fin
land
Sw
eden
Net
herla
nds
Slo
veni
a
Italy
Fra
nce
Por
tuga
l
Gre
ece
Luxe
mbo
urg
Aus
tria
Den
mar
k
Spa
in
EU15 average = 0.3%
a) Market sector b) Non-market sector
21
• The EU has a serious productivity problem. The gap with respect to theUS has increased, specially since 2009. The Asian countries are rapidlyclosing the gap with the EU. In fact Taiwan has already surpassed it.
• All nine leading countries considered had a higher LP growth than the EU during the period 2006-2013 at the aggregate level, and even more so in theservices industries.
• In all 18 sectors analized, labour productivity in the US is higher than in the EU. And the gap has increased in almost (16) all of them.
• From the various potential explanations, we have concentrated in intangible assets endowments
• Total Intangible capital, as well as in three of its main components: R&D; organizational capital; and on-the-job training, thesuperiority of the US is overhelming both for the market and non-market economy. Greece, Italy and Spain are lagging behind also in allof them.
Concluding Remarks
The EU Productivity GapMatilde Mas
Universitat de València and Ivie
Open Session Round Table:
The Future of Europe from an International Perspective
Madrid May 24th, 2016
This project has received funding from the European Union’s Seventh Framework Programme for
research, technological development and demonstration under grant agreement No. 612774