EU KLEMS productivity report.pdf

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THE EU KLEMS PRODUCTIVITY REPORT An Overview of Results from the EU KLEMS Growth and Productivity Accounts for the European Union, EU Member States and Major Other

Countries in the World

Edited by Bart van Ark*, Mary O’Mahony** and Gerard Ypma* * Groningen Growth and Development Centre, University of Groningen

** University of Birmingham

with contributions of individual consortium members

Issue no. 1 March 2007

This project is funded by the European Commission, Research Directorate General as part of the 6th Framework Programme, Priority 8, "Policy Support and Anticipating Scientific and Technological Needs".

THE EU KLEMS PRODUCTIVITY REPORT

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INDEX

INTRODUCTION.............................................................................................................................................. 3 EUROPEAN UNION: OVERALL SLOWDOWN IN PRODUCTIVITY HIDES CROSS COUNTRY VARIATION...................................................................................................................................................... 5 AUSTRIA: SEIZING OPPORTUNITIES AT THE GATE OF ECONOMIC TRANSITION ........................ 11 BELGIUM: FROM LABOUR PRODUCTIVITY GROWTH TO LABOUR INPUT GROWTH.................. 14 CZECH REPUBLIC: CAPITAL INPUT DRIVEN JOBLESS GROWTH...................................................... 17 DENMARK: LABOUR DRIVING GROWTH ............................................................................................... 19 FINLAND: FROM RESOURCE-BASED TO ICT-BASED GROWTH......................................................... 22 FRANCE: ICT IS NOT THE WHOLE STORY .............................................................................................. 25 GERMANY: LOSS OF GROWTH LEADERSHIP IN EUROPE................................................................... 28 HUNGARY: STABLE AND BALANCED GROWTH LARGELY DRIVEN BY MFP................................ 31 ITALY: NEGATIVE MFP GROWTH SUGGESTS ROLE FOR MORE COMPETITION AND EFFICIENCY ................................................................................................................................................... 33 JAPAN: CAN JAPAN ESCAPE FROM FURTHER ECONOMIC STAGNATION? .................................... 36 LUXEMBOURG: CRAWLING AHEAD........................................................................................................ 39 THE NETHERLANDS: KEEPING GROWTH UP DUE TO SHIFT TO PRODUCTIVE MARKET SERVICES ....................................................................................................................................................... 42 POLAND: MFP DRIVEN GROWTH IN MANUFACTURING AND CAPITAL INPUT DRIVEN GROWTH IN SERVICES................................................................................................................................ 45 SLOVAK REPUBLIC: GROWTH DRIVEN BY GOODS PRODUCING INDUSTRIES............................. 47 SLOVENIA: GROWTH DRIVEN BY MFP IN MANUFACTURING .......................................................... 49 SPAIN: A SUCCESS STORY SHADOWED BY A POOR PRODUCTIVITY PERFORMANCE ............... 51 SWEDEN: RAPID PRODUCTIVITY GROWTH DRIVEN BY ICT............................................................. 54 UNITED KINGDOM: HAS THE TORTOISE BECOME A HARE? ............................................................. 56 UNITED STATES: THE SPREAD OF PRODUCTIVITY GROWTH TO ICT-USING SECTORS ............. 59 OTHER COUNTRIES ..................................................................................................................................... 62

Cyprus........................................................................................................................................................... 62 Estonia .......................................................................................................................................................... 62 Greece........................................................................................................................................................... 62 Ireland........................................................................................................................................................... 63 Latvia............................................................................................................................................................ 64 Lithuania....................................................................................................................................................... 64 Malta............................................................................................................................................................. 65 Portugal......................................................................................................................................................... 65

OTHER EU-AGGREGATES........................................................................................................................... 67 THE POLICY SIGNIFICANCE OF EU KLEMS............................................................................................ 69 EU KLEMS GROWTH AND PRODUCTIVITY ACCOUNTS: A QUICK OVERVIEW............................. 72


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INTRODUCTION

This report presents the first description of results obtained from the first release of the EU KLEMS Growth and Productivity Accounts in March 2007.

The EU KLEMS database includes measures of economic growth, productivity, employment creation and capital formation at the industry level for European Union member states, Japan and the United States from 1970 onwards. This work will provide an important input to academic research on sources of economic performance and on policy evaluation, for example for the assessment of the goals concerning competitiveness and economic growth potential as established by the Lisbon agenda. While the output measures are provided at industry level, the input measures will include various categories of capital (such as ICT versus non-ICT), labour (such as skill decomposition) and a breakdown of energy, material and service inputs. Productivity measures have been developed on the basis of growth accounting techniques.

This first productivity report provides summary results for individual countries as well as for the EU as a whole from 1970 to 2004 as far as the output and labour productivity estimates are concerned. Estimates for the new member states of the EU have been added for the period since 1995.The growth accounts relate to the period 1980-2004, and only cover a limited number of the countries from the EU-15, and include another five new member states since 1995.

The sections, which are prepared by individual consortium members, provide a short overview of major trends on output and productivity growth at the aggregate level, main developments on labour productivity at sector and industry level, a discussion of the contributions to output growth from of capital, labour and (multi factor) productivity growth, and a brief discussion of specific topics that deserve attention.

In addition to the country reports, the report begins with a brief overview of the main developments for the European Union as a whole and ends with a contribution piece from the European Commission services (DG ECFIN) on the relevance of this work for policy analysis and a technical overview of the content of the database.

The database is publicly accessible as of 15 March 2007 on the EU KLEMS website: http://www.euklems.net, from which this report and additional documentation can also be obtained.

A second productivity report is scheduled for the second release of the EU KLEMS database in December 2007

March 2007 Bart van Ark, Mary O’Mahony and Gerard Ypma


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Table 1 Industry aggregation used for this report

TOT TOTAL INDUSTRIES

MARKT MARKET ECONOMY

ELECOM ELECTRICAL MACHINERY, POST AND COMMUNICATION30t33 Electrical and optical equipment

64 Post and telecommunications

MexElec MANUFACTURING, EXCLUDING ELECTRICAL15t16 Food products, beverages and tobacco17t19 Textiles, textile products, leather and footwear36t37 Manufacturing nec; recycling

20 Wood and products of wood and cork21t22 Pulp, paper, paper products, printing and publishing

23 Coke, refined petroleum products and nuclear fuel24 Chemicals and chemical products25 Rubber and plastics products26 Other non-metallic mineral products

27t28 Basic metals and fabricated metal products29 Machinery, nec

34t35 Transport equipment

OtherG OTHER GOODS PRODUCING INDUSTRIESC Mining and quarryingE Electricity, gas and water supplyF Construction

AtB Agriculture, hunting, forestry and fishing

DISTR DISTRIBUTION SERVICES50 Sale, maintenance and repair of motor vehicles and motorcycles; retail sale of fuel51 Wholesale trade and commission trade, except of motor vehicles and motorcycles52 Retail trade, except of motor vehicles and motorcycles; repair of household goods

60t63 Transport and storage

FINBU FINANCE AND BUSINESS SERVICESJ Financial intermediation

71t74 Renting of m&eq and other business activities

PERS PERSONAL AND SOCIAL SERVICESH Hotels and restaurantsO Other community, social and personal servicesP Private households with employed persons

NONMAR NON-MARKET SERVICESL Public admin and defence; compulsory social securityM EducationN Health and social work70 Real estate activities

Reallo REALLOCATION OF LABOUR EFFECT

* For a more detailed scheme see table 4 of the final section of the report

EUROPEAN UNION: SLOWDOWN IN PRODUCTIVITY HIDES CROSS COUNTRY VARIATION

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EUROPEAN UNION: OVERALL SLOWDOWN IN PRODUCTIVITY HIDES CROSS COUNTRY VARIATION

• Slowdown in labour productivity in the “old” EU-15 countries since 1995, with relatively fast growth in Finland, Sweden and the United Kingdom, medium growth in France and Germany, and slow growth in Spain and Italy.

• Rapid acceleration of labour productivity growth in many new member states reflect “catching up” and “restructuring” growth as employment growth, in particular in manufacturing, has often been negative.

• The notable difference in industry contributions to productivity growth between the European Union and the United States originates from the much smaller contribution of market services, in particular retail and financial services.

• Output growth in “old” EU countries is driven by greater employment growth, but has gone together with a relatively slow shift from non-ICT to ICT capital, and a pronounced decline in the growth rate of multifactor productivity (MFP) growth.

• The future of productivity growth in the EU will depend on the capability to make more productive use of skilled labour, facilitate the shift of capital and other resources to the most productive sectors of the economy, and improve in the innovative capacity of firms.

During the second half of the 1990s the growth performance of the European Union has undergone a marked change. Even though average GDP growth of the EU-15 (i.e. the membership before the entry of new member states in 2004) similar at 2.2 per cent from 1980-1995 to the 2.1 per cent achieved from 1995-2004, labour productivity growth slowed dramatically from 2.4 per cent from 1980-1995 to 1.3 per cent from 1995-2004. Even after including the significantly better productivity growth performance of the new member states of the Union, given their relatively small GDP, the labour productivity growth of the aggregate EU-25 was only slightly higher at 1.6 per cent from 1995-2004. Despite a recent recovery in growth in the EU, productivity growth has not yet shown a significant improvement.1

This structural slowdown in productivity for the European Union as a whole is striking in the light of a comparison with the United States, where productivity growth accelerated significantly accelerated from 1.3 per cent averaged over 1970-1995 to 2.4 per cent from 1995-2004. Even compared to Japan, which showed an even bigger slowdown in productivity growth than Europe, the productivity growth rate from 1995-2004 was still higher than in the EU at 1.8 percent.

There is a wide variation in productivity growth rates across EU member states as documented in the contributions for the individual countries in this report. In general, the productivity growth rates from 1995-2005 were by far the highest for the new member states, reflecting the restructuring of the economies in Central and Eastern Europe. However, labour input growth in the new member states has generally been negative, in particular in manufacturing. Among the “old” member states the fastest productivity growth rates were recorded in Finland and Sweden.2 Among the larger countries in the “old” EU, the UK has shown the fastest productivity growth since 1995, ahead of France and Germany. At the lower end of the productivity ranks are the two large countries in the southern part of the EU, i.e. Italy and Spain. The dismal productivity performance of the latter two countries impacts significantly on the average growth rate in the Union. However, whereas slow

1 Recent estimates for the aggregate economy can be obtained from Eurostat and OECD as well as from the

Total Economy Database of the Groningen Growth and Development Centre and The Conference Board (htpp://www.ggdc.net/dseries/totecon.html).

2 Greece also showed rapid productivity growth which, as in the new member states, largely reflects “catching up” growth,


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productivity growth in Spain was related to rapid improvement in labour input growth, the Italian economy experienced no compensating effect from an acceleration in employment growth.

The underlying analysis of the industry contributions to labour productivity since 1995 shows that the manufacturing sector continues to contribute significantly to European growth, which comes in equal shares (i.e., an 0.3 percentage point contribution) from the electrical machinery sector (which includes, for example, all the ICT production industries) and the rest of the manufacturing sector. A limited number of countries (Finland, Sweden and Ireland as well as Hungary and Latvia) showed a larger contribution from ICT production. However, compared to the United States, the striking differences in labour productivity growth originates from the much smaller contribution of market services, notably the distribution sector as well as finance and business services.

The sources of growth analysis from the EU growth and productivity accounts concentrates on a subsample of ten “old” EU countries and four new member states.3 Notably, the contribution of labour input to GDP growth in the market economy of the old EU countries improved strongly after 1995, increasing from a zero contribution to a 0.7 percentage point contribution, of which about two thirds came from faster growth in total hours worked and one third from improved labour composition, such as better skills of the labour force. Even though the rate of improvement of labour composition has declined marginally since 1995, the increase in employment of the unskilled is still more than compensated by the overall enhancement of education and training.

The contribution of capital input to value added growth has not changed much at the aggregate level, but the distribution has shifted somewhat from non-ICT capital to ICT capital. However, compared to the United States the shift towards intensive use of ICT capital has generally not been as pronounced. There are a few exceptions, such as the Netherlands and the United Kingdom, who appear to be following a similar path to the United States towards greater ICT use. Notably, when comparing the ratio of capital to labour contributions to growth in the EU, there are signs of a declining capital intensity in the EU. Thus development is in sharp contrast to the U.S. trend in capital intensity since 1995.

The factor contributing most to the slowdown of labour productivity growth in the ten old EU countries is the decline in multifactor productivity growth (which measures the output growth over the combined contribution of the factor inputs – labour and capital) from 0.7 per cent from 1970-1995 to 0.3 per cent from 1995-2004. This slowdown in MFP growth is recorded almost everywhere across the Union, with the exception of Finland and the Netherlands where it improved since 1995. In France, MFP growth has remained stable at 0.7 per cent, but slowed sharply in Germany and in the United Kingdom. In Italy and Spain, MFP growth was negative reflecting the lack of technology and innovation spillovers and market rigidities, in particular in service industries.

In conclusion, the potential for a recovery in productivity growth will to a large extent depend on the EU’s capability to transform the economy towards one that makes more productive use of its resources. Much will depend on the capacity of markets to facilitate the reallocation of resources to industries that show rapid productivity growth. However, it is difficult to predict which industries will be the most productive in the future, as technology and innovation trends are inherently difficult to forecast. For now, a productive use of a larger input from skilled employment and the exploitation of ICT investments in service industries appear the most successful policy avenues for a European productivity revival.

Contact person: Bart van Ark, GGDC, University of Groningen, [email protected]

3 The ten “old” EU countries in the growth accounts analysis refer to Austria, Belgium, Denmark, Finland,

France, Germany, Italy, the Netherlands, Spain and the United Kingdom. The four new member states refer to Czech Republic, Hungary, Poland and Slovenia.


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European Union-15 Table 1 Gross Value Added, Labour Input and Labour Productivity, 1970-1995 and 1995-2004

Gross Value Added

Total persons engaged

Total hours

worked

GVA per hour

worked1970-1995TOTAL INDUSTRIES 2.2 0.4 -0.2 2.4 100.0 2.4.Electrical machinery, post and communication 4.2 -0.4 -0.8 5.0 4.1 0.2.Manufacturing, excluding electrical 1.8 -1.2 -1.6 3.4 21.6 0.9.Other goods producing industries -0.2 -2.0 -2.4 2.1 20.7 0.6.Distribution services 2.7 0.8 0.3 2.4 19.5 0.4.Finance and business services 3.9 3.4 2.9 1.0 8.1 0.1.Personal and social services 2.1 2.0 1.6 0.5 8.1 0.0.Non-market services 2.8 2.1 1.6 1.3 17.8 0.2.Reallocation of labour effect 0.0

1995-2004TOTAL INDUSTRIES 2.2 1.2 0.8 1.4 100.0 1.4.Electrical machinery, post and communication 6.3 -0.5 -0.9 7.2 3.4 0.3.Manufacturing, excluding electrical 1.2 -0.7 -0.9 2.1 16.4 0.4.Other goods producing industries 1.4 -0.2 -0.5 1.9 14.5 0.3.Distribution services 2.5 1.2 0.8 1.7 20.3 0.3.Finance and business services 3.6 3.6 3.3 0.3 13.5 0.0.Personal and social services 1.8 2.6 2.0 -0.2 10.8 0.0.Non-market services 1.6 1.4 1.0 0.6 21.0 0.1.Reallocation of labour effect 0.0

(annual average volume growth rates, in %)Contribution to LP growth

in total industries

Average share in total

hours worked (%)

Figure 1 Labour productivity growth, 1970-1995 vs 1995-2004 (in %)

-1.00.01.02.03.04.05.06.07.08.0

TOT ELECOM MexElec OtherG DISTR FINBU PERS NONMAR

1970-1995 1995-2004


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EU-10 (New Member States) Table 1 Gross Value Added, Labour Input and Labour Productivity, 1995-2004

Gross Value Added


Total hours

worked

GVA per hour

worked1995-2004TOTAL INDUSTRIES 3.1 -0.2 -0.4 3.5 100.0 3.5.Electrical machinery, post and communication 11.5 0.6 0.4 11.2 3.4 0.4.Manufacturing, excluding electrical 4.7 -1.7 -1.8 6.5 18.9 1.3.Other goods producing industries 0.9 -1.2 -1.3 2.2 29.6 0.7.Distribution services 4.0 0.4 0.0 4.0 19.3 0.8.Finance and business services 6.2 4.0 3.7 2.5 6.4 0.1.Personal and social services 1.5 1.3 0.8 0.7 5.5 0.0.Non-market services 2.1 0.2 0.1 1.9 16.9 0.3.Reallocation of labour effect 0.0


in total industries


hours worked (%)

EU-25 (excluding Bulgaria and Romania) Table 1 Gross Value Added, Labour Input and Labour Productivity, 1995-2004

Gross Value Added


Total hours

worked

GVA per hour

worked1995-2004TOTAL INDUSTRIES 2.2 1.0 0.6 1.6 100.0 1.6.Electrical machinery, post and communication 6.5 -0.4 -0.7 7.2 3.4 0.3.Manufacturing, excluding electrical 1.4 -0.9 -1.1 2.5 16.8 0.4.Other goods producing industries 1.3 -0.5 -0.7 2.0 17.2 0.4.Distribution services 2.6 1.1 0.6 2.0 20.2 0.4.Finance and business services 3.5 3.7 3.4 0.1 12.3 0.0.Personal and social services 1.8 2.5 1.9 -0.1 9.9 0.0.Non-market services 1.7 1.2 0.9 0.8 20.3 0.2.Reallocation of labour effect 0.0


in total industries

Average share in

total hours worked (%)


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EU15ex (excluding Greece, Ireland, Luxembourg, Portugal and Sweden) Table 2 Gross value added growth and contributions, 1980-1995 and 1995-2004(annual average volume growth rates, in %)

VA L H LC K KIT KNIT MFP (1)=(2)+(5)+(8) (2)=(3)+(4) (3) (4) (5)=(6)+(7) (6) (7) (8)

1980-1995MARKET ECONOMY 1.9 0.0 -0.3 0.3 1.1 0.4 0.7 0.7.Electrical machinery, post and communication 3.9 -0.7 -0.8 0.2 1.6 0.9 0.8 2.9.Manufacturing, excluding electrical 1.2 -1.3 -1.5 0.3 0.8 0.2 0.6 1.7.Other goods producing industries -0.2 -1.2 -1.4 0.2 0.9 0.2 0.7 0.2.Distribution services 2.6 0.4 0.0 0.3 0.8 0.3 0.5 1.4.Finance and business services 3.6 2.2 1.9 0.3 1.9 0.8 1.0 -0.7.Personal and social services 1.8 1.8 1.5 0.3 1.0 0.3 0.7 -1.1

1995-2004MARKET ECONOMY 2.2 0.7 0.4 0.2 1.2 0.6 0.6 0.3.Electrical machinery, post and communication 6.0 -0.4 -0.6 0.2 1.7 1.2 0.5 4.7.Manufacturing, excluding electrical 1.0 -0.3 -0.6 0.3 0.7 0.3 0.4 0.6.Other goods producing industries 1.2 0.0 -0.2 0.2 0.7 0.1 0.6 0.5.Distribution services 2.3 0.7 0.6 0.1 1.2 0.5 0.7 0.4.Finance and business services 3.5 2.1 1.9 0.3 2.3 1.3 1.0 -1.3.Personal and social services 1.7 1.5 1.4 0.1 0.9 0.3 0.7 -0.9

VA= Gross Value Added growthL= Contribution of Labour input growth H= Contribution of Total hours workedLC= Contribution of Labour compositionK= Contribution of Capital input growthKIT= Contribution of ICT capital KNIT= Contribution of Non-ICT capital MFP= Contribution of Multi factor productivity growth EU15ex (excluding Greece, Ireland, Luxembourg, Portugal and Sweden)

Figure 2 Contributions to Gross Value Added Growth, 1995-2004 (in %)

-2.0-1.00.01.02.03.04.05.06.07.08.0

MARKT ELECOM MexElec OtherG DISTR FINBU PERS

Hours worked Labour composition ICT capital

Non-ICT capital Multi factor productivity


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Figure 3 Contributions of Industries to Market Economy Labour Productivity Growth 1995-2004 (in %)

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

ESP ITA LUX DNK GER BEL PRT NLD FRA AUT UK SWE FIN GRC

MexElec OtherG DISTR FINBU PERS ELECOM Reallo

Figure 4 Contributions of Industries to Market Economy Labour Productivity Growth 1995-2004 (in %)

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

EU15 EU10 EU25 USA-SIC JPN

MexElec OtherG DISTR FINBU PERS ELECOM Reallo

AUSTRIA: SEIZING OPPORTUNITIES AT THE GATE OF ECONOMIC TRANSITION

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• Productivity performance is strong in manufacturing but weak in the services sector

• MFP contributed one third of value added growth in the total market economy

• Simultaneous increase of competition and entrepreneurial opportunities

Since the beginning of the 1990s, the Austrian economy faced major challenges in terms of increasing competition and widespread fears of relocation of production posed by the economic transition in the Central and Eastern European countries. At the same time, many Austrian companies have seized the opportunities by expanding exports, foreign direct investment or various forms of new co-operations. Due to the relatively close spatial proximity, joint ventures with East European firms became manageable even for small and medium sized enterprises.

How did the Austrian economy respond to these challenges in terms of output and productivity performance? Comparing the periods before and after 1995, the first observation is that the importance of manufacturing activity significantly declined in favour of a pronounced shift of total hours worked towards the services sector. The biggest increase can be found in financial and business services, where the average share in total hours worked grew from 6.4% between 1970 and 1995 to 11.7% from 1995 to 2004.

The second observation is, that despite the new opportunities, there has been a general decline in the overall growth of value added. Whereas between 1970 and 1995 the average annual growth of gross value added amounted to 2.8%, it was only 2.1% from 1995 to 2004, which was comparable to the average growth rate of the EU-15. This growth slowdown must partly be accrued to the effects of fiscal consolidation at the macro level, but is also evident in the particularly strong decline of growth in the non-market services. Similarly, labour productivity dropped from 3.0% p.a. in the period from 1970 to 1995 to 1.6% p.a. from 1995 to 2004. Growth has become more labour intensive after 1995 than in the period before, with a very slight but still positive growth in terms of total persons engaged as well as hours worked. This development is entirely due to the weak productivity performance of the services sector, whereas the goods producing industries maintained their high level of labour productivity growth, resulting in a respective decline of employment and hours worked.

When focusing on the market economy, the average annual growth of value added was 2.6% in the period from 1995 to 2004. This can be decomposed into an average annual contribution of 0.5 percentage points from labour inputs (of which 0.3 accrue to an increase in the total hours worked, and 0.2 to an increase in labour quality), 0.9 percentage points from capital services (of which 0.6 accrue to ICT capital), and 1.2 percentage points contribution from multifactor productivity (MFP) growth. The MFP contribution since 1995 is only slightly below its long-term average. It is highest in the goods producing industries, below average in the distribution services, and negative in the finance and business services as well as the personal and social services. However, the latter two sectors are notoriously prone to difficulties in measuring the volume of output. Their negative MFP contributions must therefore be interpreted with more than the usual degree of caution.

To summarise, the goods producing industries, although declining in relative importance, have successfully coped with the challenges of the past decade through exposure to international competition, and have seized the new opportunities. Conversely, the disappointing productivity performance in the ICT-intensive financial and business services points towards lacking complementary investments, e.g. in organisational innovation or skill upgrading. Difficulties in measuring the true volume of output is likely to be an additional cause.

Contact person: Michael Peneder, Austrian Institute of Economic Research (WIFO), [email protected]


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Table 1 Gross Value Added, Labour Input and Labour Productivity, 1970-1995 and 1995-2004

Gross Value Added


Total hours

worked

GVA per hour

worked1970-1995TOTAL INDUSTRIES 2.8 0.1 -0.2 3.0 100.0 3.0.Electrical machinery, post and communication 5.2 0.5 0.0 5.2 4.1 0.2.Manufacturing, excluding electrical 2.4 -1.0 -1.6 4.0 21.1 1.0.Other goods producing industries 1.8 -2.0 -1.9 3.7 21.1 1.0.Distribution services 3.4 1.2 0.5 3.0 19.9 0.5.Finance and business services 4.5 3.7 2.9 1.6 6.4 0.1.Personal and social services 2.1 1.4 0.5 1.6 9.8 0.1.Non-market services 2.6 2.2 1.5 1.1 17.6 0.1.Reallocation of labour effect -0.1

1995-2004TOTAL INDUSTRIES 2.1 0.6 0.5 1.6 100.0 1.6.Electrical machinery, post and communication 3.3 -1.8 -1.8 5.1 3.6 0.2.Manufacturing, excluding electrical 2.9 -0.9 -1.6 4.5 15.3 0.8.Other goods producing industries 2.1 -1.1 -1.8 3.9 15.6 0.7.Distribution services 2.3 0.7 0.6 1.7 21.3 0.4.Finance and business services 3.5 5.3 5.5 -2.0 11.7 -0.2.Personal and social services 1.2 1.3 1.2 0.0 11.2 0.0.Non-market services 0.9 1.2 1.2 -0.4 21.4 -0.1.Reallocation of labour effect -0.2


in total industries

Average share in total hours worked

(%)

Table 2 Gross value added growth and contributions, 1980-1995 and 1995-2004(annual average volume growth rates, in %)


1980-1995MARKET ECONOMY 2.3 0.1 -0.2 0.3 0.9 0.4 0.5 1.4.Electrical machinery, post and communication 4.9 -0.3 -0.5 0.2 1.8 1.3 0.5 3.5.Manufacturing, excluding electrical 1.7 -1.2 -1.5 0.3 0.6 0.2 0.4 2.3.Other goods producing industries 1.2 -0.5 -0.6 0.1 0.2 0.1 0.2 1.5.Distribution services 2.7 0.5 0.3 0.3 1.0 0.4 0.6 1.2.Finance and business services 4.2 1.9 1.4 0.5 1.8 0.9 0.9 0.5.Personal and social services 0.9 1.4 0.8 0.6 0.5 0.1 0.4 -1.0

1995-2004MARKET ECONOMY 2.6 0.5 0.3 0.2 0.9 0.6 0.3 1.2.Electrical machinery, post and communication 3.3 -0.8 -1.1 0.3 1.5 1.1 0.4 2.5.Manufacturing, excluding electrical 2.9 -0.7 -0.9 0.2 0.5 0.5 0.0 3.1.Other goods producing industries 2.1 -0.9 -1.1 0.2 -0.1 0.1 -0.3 3.1.Distribution services 2.3 0.5 0.4 0.1 0.9 0.6 0.3 0.9.Finance and business services 3.5 3.3 3.2 0.2 2.4 1.4 1.0 -2.2.Personal and social services 1.2 1.2 0.9 0.2 0.5 0.3 0.2 -0.5

VA= Gross Value Added growthL= Contribution of Labour input growth H= Contribution of Total hours workedLC= Contribution of Labour compositionK= Contribution of Capital input growthKIT= Contribution of ICT capital KNIT= Contribution of Non-ICT capital MFP= Contribution of Multi factor productivity growth


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-3.0-2.0-1.00.01.02.03.04.05.06.0


1970-1995 1995-2004


-3.0-2.0-1.00.01.02.03.04.05.06.07.0




BELGIUM: FROM LABOUR PRODUCTIVITY GROWTH TO LABOUR INPUT GROWTH

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• The overall value added growth rate of 2.1% for 1995-2004 was slightly below the long term average

• There was a strong rise in growth of hours worked but a slowdown in labour productivity growth

• There is evidence of an increasing contribution of ICT capital to growth but only moderately positive MFP growth

Value added growth for the total economy has slowed down slightly during the period 1995–2004 but was accompanied by enhanced labour input growth. On annual average, total hours worked have increased by 0.8% over 1995-2004 up from -0.6% between 1970 and 1995. Due to deindustrialization, labour input growth has been negative in almost all manufacturing industries in both periods, although to a lesser extent between 1995 and 2004 than from 1970-1995. In most service industries, in particular in finance and business services, total working hours increased substantially.

In contrast to the labour input trends Belgium has recorded decreasing, though still positive, labour productivity growth rates between 1970 and 2004. Annual average labour productivity growth accelerated between the two periods for only two industries, namely ‘Electrical machinery and the post and communication services’, and ‘Finance and business services’. Figure 1 shows that the contribution to aggregate labour productivity growth of these two industries as well as of distribution services has risen in relative terms. The contribution of the other manufacturing industries has been on the decline in both absolute and relative terms.

Annual value added growth for the market economy amounted to 2.4% during the period 1995-2004, which is almost the same as for the period 1970-1995. Over 1995-2004, the main growth contribution has come from capital and especially ICT capital. The labour contribution was also positive but smaller than the capital contribution and mainly due to an increase in hours worked rather than in the labour composition. The MFP contribution was slightly positive for the market economy as a whole.

At the industry level, the labour contribution was negative in the manufacturing industries despite a positive labour composition effect. Among services, Finance and business services have recorded the largest positive labour contribution. Capital contributions are largest in Electrical machinery, post and communication and in Distribution services mainly due to ICT capital contributions. The contribution of MFP was particularly strong in Electrical machinery, post and communication, but negative in Distribution services and Personal and social services.

Contact person: Chantal Kegels, Federaal Planbureau, [email protected]


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Gross Value Added


Total hours

worked

GVA per hour

worked1970-1995TOTAL INDUSTRIES 2.5 0.2 -0.6 3.1 100.0 3.1.Electrical machinery, post and communication 3.3 -1.0 -1.5 4.8 4.9 0.2.Manufacturing, excluding electrical 3.1 -2.1 -2.7 5.9 23.4 1.7.Other goods producing industries 1.1 -1.7 -2.6 3.7 12.1 0.6.Distribution services 1.2 0.1 -0.6 1.8 20.7 0.4.Finance and business services 3.1 3.1 2.6 0.5 9.6 0.0.Personal and social services 2.9 1.0 0.0 2.9 7.2 0.2.Non-market services 3.0 2.0 1.2 1.8 22.1 0.3.Reallocation of labour effect -0.3

1995-2004TOTAL INDUSTRIES 2.1 0.8 0.8 1.3 100.0 1.3.Electrical machinery, post and communication 4.5 -1.0 -1.2 5.7 3.9 0.2.Manufacturing, excluding electrical 1.7 -1.1 -1.2 2.9 16.2 0.5.Other goods producing industries 1.8 -0.9 -0.4 2.2 9.0 0.2.Distribution services 1.3 0.6 0.5 0.8 20.0 0.2.Finance and business services 4.4 3.0 3.4 0.9 17.1 0.1.Personal and social services 0.7 0.6 0.5 0.2 7.6 0.0.Non-market services 1.4 1.6 1.4 0.0 26.2 0.0.Reallocation of labour effect 0.0

(annual average volume growth rates, in %)

Contribution to LP growth in

total industries


(%)



1987-1995MARKET ECONOMY 2.3 0.8 0.3 0.5 1.5 0.6 1.0 0.0.Electrical machinery, post and communication 2.3 -0.8 -1.2 0.4 1.6 1.1 0.5 1.4.Manufacturing, excluding electrical 1.8 -0.5 -1.0 0.5 2.1 0.5 1.6 0.2.Other goods producing industries 2.7 0.1 -0.3 0.3 1.0 0.2 0.8 1.6.Distribution services 1.4 0.7 0.1 0.6 1.8 0.8 1.1 -1.1.Finance and business services 3.8 3.4 3.1 0.2 0.7 0.5 0.2 -0.3.Personal and social services 3.3 1.7 1.1 0.6 1.5 0.6 0.9 0.1

1995-2004MARKET ECONOMY 2.4 0.7 0.5 0.2 1.3 0.8 0.6 0.3.Electrical machinery, post and communication 4.5 -0.5 -0.9 0.4 2.0 1.6 0.4 3.0.Manufacturing, excluding electrical 1.7 -0.4 -0.7 0.3 1.3 0.6 0.8 0.7.Other goods producing industries 1.8 -0.2 -0.3 0.1 0.6 0.3 0.3 1.4.Distribution services 1.3 0.7 0.4 0.3 1.9 1.2 0.7 -1.3.Finance and business services 4.4 2.7 2.6 0.1 0.9 0.6 0.3 0.8.Personal and social services 0.7 0.9 0.6 0.2 1.1 0.6 0.5 -1.3



– 16 –


0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0


1970-1995 1995-2004


-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

MARKT ELECOM GOODS OtherG DISTR FINBU PERS



CZECH REPUBLIC: CAPITAL INPUT DRIVEN JOBLESS GROWTH

– 17 –


• Gross value added growth high only in two sectors (Electrical machinery, post and communication and Distribution), otherwise lower than in other new member states.

• Slow growth in value added went together with a decline in labour input growth and high labour productivity growth.

• The largest part of value added growth can be explained by the contribution of capital and a small - and in some industries a negative - contribution of multifactor productivity growth.

The Czech economy was performing quite well in the past few years with GDP growth rates reaching about 6 percent in both 2005 and 2006. However, over the longer period from 1995-2004 growth was rather sluggish at about 1.7 percent per year on average. This was partly due to the crisis which hit the economy at the end of the nineties. The growth in gross value added was mainly driven by an increase in labour productivity as GVA per hour worked rose by 2.5 percent per year over this period while the number of persons engaged and hours worked declined slightly. The latter caused an increase in the rate of unemployment from 4 percent in 1995 to more than 8 percent in 2004 (based on LFS data) which started to decline due to strong growth recently.

As can be seen in table 1 gross value added growth was very uneven across sectors: ‘Electrical machinery, post and communication’ with almost 10 percent per year was growing fastest, followed by ‘Distribution services’. Gross value added in ‘Other goods producing industries’ and ‘Personal and social services’ declined strongly in this period. Labour productivity, i.e. gross value added per hour worked, is positively correlated with the growth performance at the industry level (except ‚Other goods producing industries’). However, as the average share in total hours worked is rather small for ‘Electrical machinery, post and communication’, the largest contributions to labour productivity growth came from ‘Distribution services’ and ‘Manufacturing, excluding electrical’. Other industries contributing substantially to labour productivity growth are also related to the goods producing sector.

Capital input contributed 2.5 percentage points to the growth of value added in the market economy of the Czech Republic, and also was the most important contributor in individual sectors. Non-ICT capital was more important than ICT capital with the exception of ‘Finance and business services’.

The contribution of labour for the aggregate market economy was negative at -0.3 percentage points, mainly due to employment declines in manufacturing sectors like ‘Manufacturing, excluding electrical’ and ‘Other goods producing industries’. In addition the contribution of labour composition was low but positive in all industries.

Multifactor productivity growth contributed only very little at 0.1 percentage point to the growth of value added. Again there are large industry differences as multifactor productivity explains about 30 and 40 percent of value added growth in ‘Manufacturing, excluding electrical’ and ‘Distribution services’, respectively. In contrast MFP growth was strongly negative in ‘Other goods processing industries’ and ‘Personal and social services’.

Contact person: Robert Stehrer, The Vienna Institute for International Economic Studies (WIIW), [email protected]


– 18 –

Table 1 Gross Value Added, Labour Input and Labour Productivity, 1995-2004

Gross Value Added


Total hours

worked

GVA per hour

worked1995-2004TOTAL INDUSTRIES 1.7 -0.5 -0.8 2.5 100.0 2.5.Electrical machinery, post and communication 9.7 2.0 1.5 8.2 4.6 0.3.Manufacturing, excluding electrical 2.6 -0.9 -1.2 3.8 23.9 0.9.Other goods producing industries -1.9 -3.6 -3.8 1.9 18.4 0.4.Distribution services 4.4 -0.3 -0.5 4.8 21.1 1.0.Finance and business services 3.1 1.9 1.4 1.7 9.1 0.1.Personal and social services -1.9 1.5 1.2 -3.1 6.9 -0.2.Non-market services -1.0 0.3 -0.1 -0.9 16.1 -0.1.Reallocation of labour effect 0.0


in total industries

Average share in


Table 2 Gross value added growth and contributions, 1995-2004(annual average volume growth rates, in %)


1995-2004MARKET ECONOMY 2.3 -0.3 -0.5 0.2 2.5 0.8 1.7 0.1.Electrical machinery, post and communication 9.7 0.9 0.7 0.1 7.4 3.7 3.7 1.4.Manufacturing, excluding electrical 2.6 -0.5 -0.6 0.1 2.3 0.3 1.9 0.7.Other goods producing industries -1.9 -2.0 -2.2 0.2 1.8 0.2 1.5 -1.7.Distribution services 4.4 0.0 -0.2 0.2 2.5 0.7 1.8 1.9.Finance and business services 3.1 1.2 0.9 0.3 2.1 1.4 0.7 -0.1.Personal and social services -1.9 0.9 0.7 0.2 0.9 0.4 0.5 -3.6



-6.0-4.0-2.00.02.04.06.08.0

10.012.0




DENMARK: LABOUR DRIVING GROWTH

– 19 –


• There has been an acceleration in hours of labour supplied

• Labour productivity growth largely comes from manufacturing

• There is a higher contribution to growth from labour and capital than from multifactor productivity

• Multifactor productivity growth is only significant in post and communication

The contribution of labour to growth in Denmark has undergone a remarkable change from the period prior to 1995 to the period after. Table 1 shows that the number of hours worked was decreasing annually at -0.6 per cent from 1970 to 1995. This is in contrast to the period from 1995 to 2004, when hours worked increased annually at 0.8 per cent. The decrease in labour input in the period before 1995 was only partly offset by a growing labour force of 0.2 per cent annually, but the increase after 1995 is backed up by a significant increase in number of persons engaged of 0.6 per cent per year. Despite the increase in total hours, gross value added (GVA) decelerated between the two periods due to slowing labour productivity growth at 1.1 per cent from 1995-2004 down from 3.1 before 1995. In the current Danish debate there is a lot of focus on the need to increase the labour force to prepare the Danish society for the ageing population. Hence it will be of vital importance for the Danish economy to continue the positive trend labour input’s contribution to growth, if reversing the trend of less contribution from capital and multifactor productivity is difficult.

The slow growth in labour productivity growth since is particularly due to a very small contribution from the service sector with the exception of post and communication (electrical machinery, which is also part of this group, is a very small industry in Denmark), which has maintained a very high growth rate of value added per hour worked (see Figure 1). This is in contrast to the previous decades when approximately one third of the contribution to labour productivity growth originated in the service industries.

Recent Danish growth has been dominated by an increased importance of labour and capital and a decreased contribution from multifactor productivity. Table 2 shows that labour has a negative contribution to market economy growth in value added of -0.1 per cent per year from 1980 to 1995. The contribution was 0.9 per cent annually from 1995 to 2004. For capital the acceleration in the contribution is slightly more modest from 1.4 to 1.8 percentage points.

In contrast multifactor productivity has decreased by 2 percentage points from 1.5 to -0.5 per cent per year on average between the two periods. Part of the reason for the slowing growth of Danish productivity growth related to the industrial composition of the Danish economy. Denmark has only got a very small ICT producing sector were much of the productivity acceleration in other countries has originated. But the slowdown has been a general trend for all sectors and not just for some specific industries. Indeed the relative success with reducing the unemployment rate may probably have caused some negative effects for multifactor productivity growth. The poor multifactor productivity performance has been realized despite massive investments in ICT equipment. Hence there is no indication of spill over effects from ICT on productivity growth in Denmark.

Contact person: Martin Junge, Centre for Economic and Business Research (CEBR), [email protected]


– 20 –


Gross Value Added


Total hours

worked

GVA per hour

worked1970-1995TOTAL INDUSTRIES 2.5 0.2 -0.6 3.1 100.0 3.1.Electrical machinery, post and communication 5.1 0.0 -0.7 5.8 3.8 0.2.Manufacturing, excluding electrical 2.0 -1.2 -1.8 3.8 18.5 0.9.Other goods producing industries 3.3 -2.4 -3.0 6.2 15.3 1.3.Distribution services 1.8 -0.1 -1.1 2.9 21.2 0.7.Finance and business services 3.8 2.2 1.3 2.5 8.0 0.2.Personal and social services 2.0 0.6 -0.1 2.1 6.5 0.1.Non-market services 2.2 2.5 1.6 0.7 26.6 0.1.Reallocation of labour effect -0.3

1995-2004TOTAL INDUSTRIES 1.9 0.6 0.8 1.1 100.0 1.1.Electrical machinery, post and communication 6.9 1.1 1.3 5.6 3.7 0.2.Manufacturing, excluding electrical 0.1 -2.0 -1.7 1.8 15.2 0.3.Other goods producing industries 2.5 -0.5 0.1 2.4 11.0 0.3.Distribution services 2.3 0.7 1.1 1.2 20.6 0.2.Finance and business services 4.6 3.6 3.9 0.7 11.3 0.1.Personal and social services -0.8 1.9 1.8 -2.6 8.0 -0.2.Non-market services 1.0 0.9 0.6 0.4 30.1 0.1.Reallocation of labour effect 0.1



total industries


(%)


VA L H LC K KIT KNIT MFP(1)=(2)+(5)+(8) (2)=(3)+(4) (3) (4) (5)=(6)+(7) (6) (7) (8)

1980-1995MARKET ECONOMY 2.8 -0.1 -0.4 0.3 1.4 1.0 0.4 1.5.Electrical machinery, post and communication 4.4 -0.4 -0.6 0.2 1.4 0.7 0.7 3.4.Manufacturing, excluding electrical 1.3 -0.4 -0.6 0.2 0.9 0.6 0.4 0.8.Other goods producing industries 4.0 -1.0 -1.4 0.4 1.1 0.3 0.8 3.9.Distribution services 2.2 -0.2 -0.4 0.2 1.4 1.2 0.2 1.0.Finance and business services 4.7 1.0 0.7 0.4 2.0 2.0 0.0 1.6.Personal and social services 2.3 1.4 1.1 0.4 2.2 1.5 0.6 -1.1

1995-2004MARKET ECONOMY 2.3 0.9 0.6 0.3 1.8 1.3 0.5 -0.5.Electrical machinery, post and communication 6.9 1.2 0.8 0.4 3.5 2.2 1.4 2.1.Manufacturing, excluding electrical 0.1 -0.7 -1.1 0.4 1.2 0.7 0.5 -0.3.Other goods producing industries 2.5 0.4 0.3 0.1 2.1 1.1 0.9 0.0.Distribution services 2.3 1.0 0.8 0.3 1.5 0.9 0.6 -0.2.Finance and business services 4.6 2.8 2.5 0.4 2.4 2.6 -0.2 -0.7.Personal and social services -0.8 1.3 1.1 0.2 1.6 1.1 0.5 -3.7



– 21 –


-4.0-3.0-2.0-1.00.01.02.03.04.05.06.07.0


1970-1995 1995-2004


-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0




FINLAND: FROM RESOURCE-BASED TO ICT-BASED GROWTH

– 22 –


• Rapid recovery occurred following a severe depression in the early 1990s

• Strong output and productivity performance is based on the success of the ICT-producing sector

• Although still high by European standards, the trend of labour productivity growth is declining

• The outsourcing of ICT production to low wage countries will provide a threat to productivity performance in the future

• …and Finland may have to “do it again”

The Finnish economy was hit by a severe depression in the early 1990s. The volume of gross value added (GVA) fell by 10 per cent between 1990 and 1992. The recovery has, however, been rapid. In 1995-2004, GVA grew at the average annual rate of 3.5 per cent and the number of hours worked at the rate of 1.2 per cent (Table 1). Labour productivity growth (2.3 %) was one percentage point higher than in the EU-15 area. In the market economy, GVA grew at the average rate of 4.4 percent. Growth has been especially rapid in the ICT-producing sector (14.9 %) which has replaced the forest and metal industries as the key driver of output and productivity growth (Table 1). From 1995 to 2004 labour input contributed 1.0 percentage points, capital input 0.8 percentage points and multi factor productivity 2.6 percentage points to the growth of value added in the market economy. The ICT capital contribution was 0.6 percentage points which is only slightly higher than in the EU-15 area. Consequently, Finland’s growth performance has been based on its success as an ICT producer rather than an ICT user. This is reflected in Figure 2. It displays the outstanding growth of the ICT producing sector (EleCom) to which multifactor productivity contributed the most, indicating the rapid advance of technology in this sector. The growth rates in the ICT-using sectors, such as distribution, finance and business services, have been modest. Although still high by European standards, it is stressed that the trend of labour productivity is declining in the total economy. It fell from 4.0 per cent in 1970-1995 to 2.3 in 1995-2004 (Figure 1). Given the large dependency on the ICT-producing sector, the ongoing outsourcing of ICT production to low wage countries provides a threat to productivity performance in the future. Finland may have to restructure its economy once again in the digital era.

Contact person: Matti Pohjola, Helsinki School of Economics (HSE), [email protected]


– 23 –


Gross Value Added


Total hours

worked

GVA per hour

worked1970-1995TOTAL INDUSTRIES 3.1 -0.4 -0.9 4.0 100.0 4.0.Electrical machinery, post and communication 7.8 1.7 1.7 6.1 3.1 0.1.Manufacturing, excluding electrical 4.0 -1.2 -1.8 5.8 19.5 1.2.Other goods producing industries 0.6 -3.4 -3.5 4.1 27.6 1.6.Distribution services 2.7 -0.5 -0.7 3.4 18.6 0.6.Finance and business services 5.2 3.5 3.5 1.8 5.4 0.0.Personal and social services 3.1 1.0 0.7 2.4 5.7 0.1.Non-market services 3.3 1.7 1.6 1.7 20.1 0.2.Reallocation of labour effect 0.1

1995-2004TOTAL INDUSTRIES 3.5 1.6 1.2 2.3 100.0 2.3.Electrical machinery, post and communication 14.9 1.3 1.5 13.4 4.5 0.6.Manufacturing, excluding electrical 3.4 0.2 0.1 3.3 15.7 0.5.Other goods producing industries 1.7 -0.2 -0.6 2.4 17.9 0.5.Distribution services 3.9 1.9 1.6 2.3 18.7 0.4.Finance and business services 2.9 4.0 3.6 -0.7 9.0 -0.1.Personal and social services 2.1 2.7 2.9 -0.8 7.4 -0.1.Non-market services 1.4 1.9 1.6 -0.2 26.8 -0.1.Reallocation of labour effect 0.5



total industries

Average share in




1980-1995MARKET ECONOMY 1.8 -0.5 -1.1 0.6 0.9 0.3 0.5 1.5.Electrical machinery, post and communication 8.4 1.0 0.5 0.5 2.7 1.3 1.4 4.8.Manufacturing, excluding electrical 1.9 -1.5 -2.0 0.5 1.0 0.3 0.8 2.4.Other goods producing industries -0.5 -2.0 -2.6 0.6 0.3 0.1 0.2 1.2.Distribution services 1.6 -0.4 -0.9 0.5 0.9 0.4 0.6 1.1.Finance and business services 3.3 2.9 2.0 0.9 0.7 0.6 0.1 -0.3.Personal and social services 1.8 1.5 0.5 1.0 0.8 0.4 0.3 -0.5

1995-2004MARKET ECONOMY 4.4 1.0 0.9 0.1 0.8 0.6 0.2 2.6.Electrical machinery, post and communication 14.9 0.9 0.9 0.1 3.9 1.4 2.6 10.0.Manufacturing, excluding electrical 3.4 0.3 0.0 0.3 0.5 0.2 0.3 2.6.Other goods producing industries 1.7 0.3 0.2 0.1 0.2 0.1 0.1 1.2.Distribution services 3.9 1.0 1.0 0.0 0.5 0.5 0.0 2.4.Finance and business services 2.9 2.3 2.4 -0.1 0.3 1.3 -1.0 0.3.Personal and social services 2.1 2.2 2.3 -0.1 0.5 0.4 0.0 -0.5



– 24 –


-2.00.02.04.06.08.0

10.012.014.016.0


1970-1995 1995-2004


-2.00.02.04.06.08.0

10.012.014.016.0




FRANCE: ICT IS NOT THE WHOLE STORY

– 25 –


• A shift of labour and hours worked from the manufacturing sector towards services has been under way for the last 25 years but has gone together with a significant slowdown in labour productivity growth.

• The investment contribution to value added growth in France has remained relatively stable, but there has been an offsetting effect between ICT and non-ICT capital. While the contribution of non-ICT capital has slightly declined, ICT capital has shown an increased contribution.

• The French economy has continued to show a fairly strong contribution of multifactor productivity (MFP) to value added and labour productivity growth per hour worked over the past 10 years at about 0.7 percent, without showing a decline compared to the 1980-1995 period. This is mainly due to a continued strong MFP growth in the manufacturing sector.

One of the major concerns in France is its still high unemployment rate. At the aggregate level, labour productivity growth went together with the shedding of labour, chiefly in the manufacturing sector. Over 1995-2004, employment and hours worked have increased while labour productivity has been on its way down (see table 1). Labour productivity per hour worked has remained relatively high in the manufacturing sector, but this sector has lost a substantial share of labour input relative to services sectors (table 1). As a result, table 1 shows a lower contribution of both the manufacturing sector excluding the ICT industries (MexElec) and the other goods producing industries (otherG) to market economy labour productivity growth. Only the ICT industries (Elecom) and Personal services have managed to slightly increase their share in labour productivity. The decreasing reallocation term over the 1995-04 period means hours are reallocated to the less productive industries, notably in services.

Table 2 displays that VA growth has accelerated between the 1980-1995 and the 1995-2004 periods. The increasing contribution of hours over the 1995-04 period is accompanied by a decreasing contribution of labour composition. While aggregate MFP growth for the market economy has remained constant, an increased MFP contribution from the manufacturing sector is offset by a decline in most service sectors and a negative MFP growth in financial and business services. The underperformance of financial and business services has occurred despite a rapid increase in ICT and non-ICT capital, suggesting a lack of positive spillover effects to MFP. In contrast, MFP growth in personal services has turned positive since 1995-2004 which may be related to a good performance of the media industry.

The acceleration of MFP in the manufacturing sector may be related to streamlining vertical production processes in France and outwards, and as a result, displacing labour towards services sectors. Should increased productivity gains be obtained in services, this should not be at the expense of aggregate employment. This would suggest, in turn, the creation of high-value activities consistent with higher education levels.

Contact person: Laurence Nayman, Centre d'études prospectives et d'informations internationals (CEPII), [email protected]


– 26 –


Gross Value Added


Total hours

worked

GVA per hour

worked1970-1995TOTAL INDUSTRIES 2.5 0.3 -0.6 3.2 100.0 3.2.Electrical machinery, post and communication 5.8 0.3 -0.4 6.2 3.7 0.2.Manufacturing, excluding electrical 1.8 -1.5 -2.0 3.9 18.7 0.8.Other goods producing industries 0.5 -2.6 -3.5 4.0 23.0 1.3.Distribution services 3.3 0.5 -0.3 3.6 17.3 0.6.Finance and business services 3.1 2.9 2.2 0.9 10.2 0.1.Personal and social services 1.8 2.0 1.4 0.4 6.4 0.0.Non-market services 3.0 2.3 1.5 1.5 20.7 0.2.Reallocation of labour effect 0.0

1995-2004TOTAL INDUSTRIES 2.1 1.1 0.4 1.7 100.0 1.7.Electrical machinery, post and communication 7.6 -0.3 -1.0 8.6 3.4 0.3.Manufacturing, excluding electrical 1.8 -0.9 -1.5 3.3 13.9 0.5.Other goods producing industries 0.8 -0.3 -1.0 1.8 14.2 0.3.Distribution services 2.4 1.6 1.0 1.4 18.2 0.2.Finance and business services 2.8 3.0 2.5 0.3 15.6 0.0.Personal and social services 2.8 2.6 1.6 1.1 8.7 0.1.Non-market services 1.4 0.8 0.3 1.1 26.0 0.3.Reallocation of labour effect 0.0


in total industries

Average share in




1982-1995MARKET ECONOMY 1.7 -0.2 -0.6 0.4 0.9 0.3 0.6 1.0.Electrical machinery, post and communication 4.6 -0.3 -0.7 0.4 1.3 0.4 0.9 3.6.Manufacturing, excluding electrical 1.0 -1.3 -1.7 0.4 1.1 0.2 0.9 1.2.Other goods producing industries 0.2 -2.0 -2.5 0.5 0.5 0.1 0.4 1.8.Distribution services 3.1 0.0 -0.4 0.4 0.6 0.1 0.4 2.5.Finance and business services 2.1 1.8 1.4 0.4 1.3 0.7 0.7 -1.0.Personal and social services** 0.9 1.6 1.2 0.4 0.9 0.5 0.5 -1.6

1995-2004MARKET ECONOMY 2.5 0.8 0.4 0.4 1.0 0.5 0.5 0.7.Electrical machinery, post and communication 7.6 -0.3 -0.6 0.3 1.0 0.8 0.2 6.9.Manufacturing, excluding electrical 1.8 -0.5 -1.0 0.5 0.6 0.3 0.3 1.7.Other goods producing industries 0.8 -0.2 -0.6 0.3 0.7 0.2 0.5 0.4.Distribution services 2.4 1.2 0.8 0.4 0.7 0.3 0.5 0.5.Finance and business services 2.8 2.0 1.7 0.3 2.1 1.0 1.0 -1.3.Personal and social services** 2.7 1.4 1.0 0.3 0.4 0.0 0.4 0.9** excluding private households



– 27 –


0.01.02.03.04.05.06.07.08.09.0

10.0


1970-1995 1995-2004


-2.0

0.0

2.0

4.0

6.0

8.0

10.0




GERMANY: LOSS OF GROWTH LEADERSHIP IN EUROPE

– 28 –


• Growth and productivity slowed down across all industries after 1995

• The contribution of distribution services to labour productivity growth increased, but manufacturing still plays an important role

• The expansionary budget policy after unification has caused repercussions

Germany's growth performance since 1995 has been very sluggish compared with the years before. After nearly 2.5 average growth rate of value added between 1970 and 1995, the growth path of the German economy reduced to 1.4 % after 1995. Since growth of labour productivity has been reduced in the same to order, changes in labour input have not changed much after 1995 compared to the period before. Due to the reduction of the average working time, total working hours increased at an average rate of 0.4 per cent since 1995 which was of the same magnitude as before 1995. Due to the improved performance of German firms on export markets since 1995, growth of value added in manufacturing has remained nearly unchanged compared with the years before. Value added for electrical machinery, post and communication increased even more than before. In all the other sectors, the growth path after 1995 was below that of the years before. The repercussions of the building boom after unification influenced the decrease of value added for other good producing industries. The existence of a long term trend towards business and personal services is demonstrated by the change in the composition of hours worked between the two periods considered (Table 1). The trend in these industries has been fostered in the years immediately following unification, but productivity growth returned to below average trend growth rates after 1995. Since 1995 labour productivity growth accelerated only in Electrical machinery, post, and communication. After 1995, manufacturing lost its position as major contributor to total productivity growth. In both Financial and business services and in Personal and social services, labour productivity decreased since 1995, due to a growing proportion of low productivity services, while the high productivity growth in Distribution services could almost be maintained Despite the reduced growth path after 1995, capital's contribution to growth of the market economy remained nearly unchanged, compared with the years before, although this is almost entirely based on an increase of capital input in financial and business services (Table 2). However, the composition changed considerably after 1995: half of the input growth of capital can be attributed to ICT capital, while this share has been 20 % in the average before 1995. For the market economy, growth of MFP slowed down in the years since 1995 to 0.4 per cent, nearly one-third of its pre-1995 rate. This development is accompanied by two strongly opposing sectoral developments (Figure 2): a dramatic increase for Electrical machinery, post and communication (5.2 per cent) and a strong reduction in Financial and business services (-3.4 per cent) as well as in Personal and social services (-0.7 per cent).

Contact person: Bernd Görzig, Deutsches Institut für Wirtschaftsforschung e.V. Berlin (DIW), [email protected]


– 29 –


Gross Value Added


Total hours

worked

GVA per hour

worked1970-1995TOTAL INDUSTRIES 2.4 0.5 -0.4 2.8 100.0 2.8.Electrical machinery, post and communication 3.2 -0.5 -1.4 4.6 5.4 0.3.Manufacturing, excluding electrical 0.9 -1.3 -2.2 3.0 24.8 0.9.Other goods producing industries 0.6 -1.3 -1.9 2.5 16.9 0.5.Distribution services 2.7 1.0 -0.1 2.8 19.3 0.5.Finance and business services 4.7 3.4 2.4 2.3 7.6 0.1.Personal and social services 2.4 2.9 1.6 0.7 7.1 0.0.Non-market services 3.6 2.4 1.3 2.3 19.0 0.3.Reallocation of labour effect 0.1

1995-2004TOTAL INDUSTRIES 1.4 0.4 -0.3 1.7 100.0 1.7.Electrical machinery, post and communication 4.0 -1.6 -2.4 6.4 4.0 0.3.Manufacturing, excluding electrical 0.8 -1.1 -1.5 2.2 18.2 0.4.Other goods producing industries -1.5 -3.6 -4.0 2.5 12.3 0.4.Distribution services 1.8 0.3 -0.5 2.3 20.0 0.5.Finance and business services 1.5 3.9 3.1 -1.5 13.1 -0.2.Personal and social services 0.4 2.3 1.3 -0.9 9.8 -0.1.Non-market services 2.2 1.0 0.5 1.7 22.7 0.4.Reallocation of labour effect 0.1


in total industries


hours worked (%)



1980-1995MARKET ECONOMY 1.9 -0.2 -0.4 0.2 0.9 0.2 0.7 1.1.Electrical machinery, post and communication 2.6 -0.9 -1.1 0.2 1.4 0.5 0.9 2.1.Manufacturing, excluding electrical 0.5 -1.2 -1.5 0.2 0.6 0.1 0.5 1.1.Other goods producing industries* 0.5 -0.3 -0.4 0.1 0.7 0.1 0.5 0.2.Distribution services 2.6 0.3 0.1 0.2 0.5 0.2 0.3 1.9.Finance and business services 4.4 1.5 1.4 0.2 1.9 0.5 1.3 1.0.Personal and social services 2.2 1.6 1.3 0.3 0.7 0.0 0.7 0.1

1995-2004MARKET ECONOMY 1.0 -0.3 -0.5 0.1 1.0 0.5 0.5 0.4.Electrical machinery, post and communication 4.0 -1.5 -1.7 0.2 0.3 0.2 0.1 5.2.Manufacturing, excluding electrical 0.8 -0.7 -1.1 0.3 0.3 0.2 0.2 1.2.Other goods producing industries* -2.1 -2.9 -3.1 0.2 0.0 0.0 0.0 0.8.Distribution services 1.8 -0.4 -0.4 0.1 0.6 0.2 0.3 1.6.Finance and business services 1.5 1.7 1.5 0.1 3.3 1.6 1.7 -3.4.Personal and social services 0.3 0.8 0.9 -0.1 0.3 0.1 0.3 -0.8* excluding agriculture



– 30 –


-2.0-1.00.01.02.03.04.05.06.07.0


1970-1995 1995-2004


-4.0

-2.0

0.0

2.0

4.0

6.0

8.0




HUNGARY: STABLE AND BALANCED GROWTH LARGELY DRIVEN BY MFP

– 31 –


• The stable and – compared to other new EU member states – relatively high growth of gross value added in Hungary was relatively balanced across industries with the exception of the very high growth in “Electrical machinery, post and communication”.

• Gross value added growth went together with labour productivity growth and labour input growth and thus resulting in declining unemployment.

• Half of gross value added growth in Hungary can be attributed to multifactor productivity growth whereas capital input and labour input account for the remaining part at equal rates.

Gross value added in Hungary grew at a rate of 4.1 percent per year over the period 1995-2004. This growth performance was amongst the highest of the new member states. As gross value added per hour worked was growing at a somewhat lower rate (3.6 percent per year), the number of persons engaged as well as total hours worked also increased which is an exceptional development amongst the countries in this region. There are however marked differences when comparing the growth performance across industries: Very high rates of growth show up in ‘Electrical machinery, post and communication’ with gross value added growth at 15.1 percent per year and labour productivity growth at 12 percent per year. However, due to the relatively low share of this industry in total hours worked (5.6 percent) the contribution to overall labour productivity growth was only 0.6 percentage points, which is comparable to the ‘Other goods producing industries’ along with ‘Distribution services’ and ‘Non-market services’ – albeit the latter showed a less impressive performance in overall and labour productivity growth. The contribution of the remaining sectors to labour productivity growth is negligible. Except for ‘Electrical machinery, post and communication’ labour productivity growth surpassed output growth in the two other goods producing industries leading to a decrease in labour demand. In contrast employment growth was particularly high at 6 percent per year in ‘Finance and business services’ which was accompanied by a slight decline in gross value added per hour worked. About half of gross value added growth in the market economy was explained by multifactor productivity growth. The remaining fifty percent are equally divided between capital and labour inputs. For the latter the contribution of changes in labour composition with 0.4 was similar to the contribution of total hours worked. Despite lower shares in total capital, the contribution of ICT capital amounted to 0.6 percentage points and was thus higher than that of non-ICT capital at 0.4 percentage points. Regarding individual industries, labour contribution was largest in ‘Finance and business services’ and negative in ‘Manufacturing, excluding electrical’ and ‘Other goods and producing industries’. Most of these industry differences can be explained by differences in the contribution of total hours worked as labour composition changes are relatively similar, with the exception of ‘Personal and social services’. The contribution of capital input to value added growth ranged from 2.4 percentage points in ‘Electrical machinery, post and communication’ to -0.3 percentage points in ‘Other goods producing industries’, the latter resulting mainly from a negative contribution of non-ICT capital input. A large part of differences of value added growth by industry stems from differences in the contribution of multifactor productivity growth: this contribution was highest in ‘Electrical machinery, post and communication’ at 10.9 percentage points while MFP declined in ‘Finance and business services’ and ‘Personal and social services’. In the former sector, gross value added growth was mainly driven by labour input growth whereas in the latter the contribution of capital input was important as well.



– 32 –


Gross Value Added


Total hours

worked

GVA per hour

worked1995-2004TOTAL INDUSTRIES 4.1 0.8 0.5 3.6 100.0 3.6.Electrical machinery, post and communication 15.1 3.5 3.1 12.0 5.6 0.6.Manufacturing, excluding electrical 2.4 -0.5 -0.8 3.2 20.4 0.7.Other goods producing industries 2.6 -1.1 -0.9 3.5 17.1 0.6.Distribution services 3.9 1.1 0.7 3.2 20.8 0.7.Finance and business services 5.2 6.0 5.4 -0.2 6.9 0.0.Personal and social services 0.7 0.6 0.1 0.6 8.1 0.1.Non-market services 3.7 0.8 0.8 3.0 21.1 0.6.Reallocation of labour effect 0.4


in total industries


hours worked (%)



1995-2004MARKET ECONOMY 4.3 1.0 0.6 0.4 1.0 0.6 0.4 2.2.Electrical machinery, post and communication 15.1 1.8 1.4 0.4 2.4 1.0 1.5 10.9.Manufacturing, excluding electrical 2.4 -0.1 -0.4 0.3 1.4 0.4 1.1 1.1.Other goods producing industries 2.6 -0.5 -0.8 0.3 -0.3 0.2 -0.5 3.3.Distribution services 3.9 1.2 0.8 0.4 0.7 0.5 0.2 1.9.Finance and business services 5.2 4.1 3.4 0.7 1.6 1.5 0.1 -0.5.Personal and social services 0.7 0.6 0.0 0.6 0.9 0.7 0.2 -0.7



-4.0-2.00.02.04.06.08.0

10.012.014.016.0




ITALY: NEGATIVE MFP GROWTH SUGGESTS ROLE FOR MORE COMPETITION AND EFFICIENCY

– 33 –


• The Italian economy has experienced a strong reduction of GDP growth, which is due to a slowdown in labour productivity only in part compensated by an improved performance of labour input

• While the manufacturing has strongly contracted, hours growth in market services has been insufficient.

• MFP growth has been negative across the board point at a critical problem concerning labour market and competition policies in Italy.

The Italian economy has shows a dramatic change in its pattern of growth during the last decade, especially if compared with the previous twenty five years. The average annual growth rate in real gross value added almost halved, whereas the rate of growth in labour input nearly tripled after the adoption of more flexible forms of hiring young workers and immigrants. As a result of these changes, labour productivity growth has fallen from 2.4 per cent in the period 1970-1995 to an average of annual growth rate of 0.6 per cent in 1995-2004. This strong deceleration has emerged from deep structural changes in the sectoral composition of the economy. The contribution of manufacturing industries (except electrical) has fallen from a sustained 2.0 per cent in the period 1970-1995 to only 0.4 per cent in the decade 1995-2004. The contribution of services industries has remained relatively stagnant in both periods. Despite the increase in the growth rate of labour inputs and a constant contribution of capital services, the Italian economy appears to have suffered from an apparently strong decline in multifactor factor productivity (MFP). In the overall economy, MFP has fallen from an average annual growth rate of 0.5 per cent in 1970-1995 to -0.7 per cent in 1995-2004. This decline can be attributed across the board to the manufacturing and services industries alike. The strongly negative growth rates in distribution and personal services point to the critical role of policies oriented to improve competition and efficiency in the overall economy, given their direct and indirect impacts on the costs of production and competitiveness in many other sectors. The increase in ICT capital inputs has been rather slow in all sectors, except the finance and business services. In the latter industry, however, non-ICT capital inputs have increased relatively slowly, thus partially offsetting the beneficial effects of the intensive use of new ICT capital inputs. The lack of complementary accumulation of other capital goods and qualified labour inputs in addition to ICT capital may help to explain why Italy has exhibited a relatively poor performance in multifactor productivity in many industries.

Contact person: Carlo Milana, Istituto di Studi e Analisi Economica (ISAE), [email protected]


– 34 –


Gross Value Added


Total hours

worked

GVA per hour

worked1970-1995TOTAL INDUSTRIES 2.7 0.4 0.3 2.4 100.0 2.4.Electrical machinery, post and communication 5.7 0.1 0.3 5.4 3.3 0.2.Manufacturing, excluding electrical 3.2 -0.3 -0.4 3.6 22.3 0.9.Other goods producing industries 0.7 -2.9 -2.6 3.4 24.0 1.1.Distribution services 3.4 1.1 1.2 2.3 20.4 0.4.Finance and business services 2.6 4.7 4.7 -2.0 6.3 -0.1.Personal and social services 1.6 2.5 2.4 -0.9 9.9 -0.1.Non-market services 2.8 1.9 1.8 1.0 13.6 0.1.Reallocation of labour effect -0.1

1995-2004TOTAL INDUSTRIES 1.4 1.2 0.8 0.6 100.0 0.6.Electrical machinery, post and communication 4.9 -0.1 -0.3 5.1 3.0 0.2.Manufacturing, excluding electrical -0.2 -0.2 -0.1 -0.1 19.2 0.0.Other goods producing industries 1.6 -0.2 -0.6 2.3 15.2 0.4.Distribution services 1.0 1.0 0.8 0.2 21.5 0.0.Finance and business services 3.2 4.7 4.3 -1.1 12.1 -0.1.Personal and social services 1.2 2.8 2.0 -0.7 13.9 -0.1.Non-market services 1.2 0.5 -0.2 1.4 15.2 0.2.Reallocation of labour effect 0.0



total industries


(%)



1980-1995MARKET ECONOMY* 1.9 0.4 0.3 0.1 1.0 0.2 0.7 0.5.Electrical machinery, post and communication 3.6 -0.5 -0.6 0.0 1.7 0.8 0.9 2.5.Manufacturing, excluding electrical 1.8 -1.0 -1.0 0.0 0.8 0.1 0.7 1.9.Other goods producing industries* 0.5 -0.3 -0.3 0.0 1.1 0.1 1.0 -0.2.Distribution services 2.5 0.6 0.4 0.2 1.0 0.3 0.7 0.9.Finance and business services 2.3 2.9 2.7 0.2 1.3 0.5 0.8 -1.9.Personal and social services** 1.2 2.5 2.5 0.0 0.4 0.0 0.4 -1.7

1995-2004MARKET ECONOMY* 1.4 1.0 0.9 0.1 1.1 0.2 0.9 -0.7.Electrical machinery, post and communication 4.9 -0.2 -0.2 0.0 1.5 0.2 1.2 3.6.Manufacturing, excluding electrical -0.2 0.1 0.0 0.1 0.8 0.1 0.7 -1.1.Other goods producing industries* 1.7 0.7 0.7 0.0 1.0 0.0 1.0 -0.1.Distribution services 1.0 0.9 0.7 0.2 1.5 0.2 1.3 -1.4.Finance and business services 3.2 2.5 2.3 0.2 0.9 0.7 0.2 -0.2.Personal and social services** 1.2 1.6 1.5 0.1 1.4 0.3 1.2 -1.8* excluding agriculture** excluding private households



– 35 –


-3.0-2.0-1.00.01.02.03.04.05.06.0


1970-1995 1995-2004


-3.0-2.0-1.00.01.02.03.04.05.06.0




JAPAN: CAN JAPAN ESCAPE FROM FURTHER ECONOMIC STAGNATION?

– 36 –


• Since the early 1990s Japan experienced low output growth relative to other major economies and so the past ten years can be described as Japan’s lost decade

• There were stark differences in productivity performance across industries after 1995, with poor performance in both traditional manufacturing and market services.

• Productivity growth in the service sector is likely to be the key to Japan’s revival as manufacturing is likely to experience further declines

Following the collapse of the bubble economy in the early 1990s, Japan’s economic growth stalled. The real GDP growth rate in the period 1995-2004 was only 1.0%, which is much smaller than the 3.3% growth registered in 1973-1995 (Table 1) and the lowest among the five major economies (US, Japan, Germany, UK, and France). As Table 2 shows, all three factors contributing to economic growth, that is, the contribution of labor input, capital input (especially non-ICT capital input) and multifactor productivity (MFP) growth, were responsible for this slowdown with almost equal contributions. In the period 1995-2004, each of the three contributing factors was the smallest in Japan among the five major economies. The slowdown in both labor productivity and multifactor productivity was particularly severe in distribution services, non-electrical manufacturing, and finance and business services (Table 1 and Table 2). On the other hand, MFP growth in the electric machinery, post and communication industry (ICT industry) accelerated and was the highest among the five major economies after 1995. But since the share of the ICT industry in the total economy is not large in Japan (the industry’s average share in Japan’s total hours worked was only 4.1% in 1995-2004, Table 1), the acceleration of MFP growth in the ICT industry could not cancel out the disappointing performance of MFP growth in the other industries. The very low or negative growth of capital and labor input are likely to continue for some time. Japan’s working age population is expected to shrink at an average annual rate of 0.8% in the next twenty years. Although Japan experienced a rapid decline in private investment in the last decade, her capital-labor ratio is still at the global top and we can expect no further substantial capital deepening. Many economists expect that the aging of the population will cause a continuous decline in the saving rate and a shrinking of the current account surplus, which in turn will further reduce Japan’s manufacturing sector, including the ICT industry. Therefore, an acceleration of productivity growth in the service sector seems to be the key for Japan’s further economic growth.

Contact person: Kyoji Fukao, Hitotsubashi University, [email protected]


– 37 –


Gross Value Added


Total hours

worked

GVA per hour

worked1973-1995TOTAL INDUSTRIES 3.3 0.8 0.2 3.1 100.0 3.1.Electrical machinery, post and communication 10.9 0.8 0.4 10.6 4.4 0.4.Manufacturing, excluding electrical 2.2 -0.3 -0.8 3.0 20.2 0.7.Other goods producing industries 0.8 -1.0 -1.4 2.0 21.8 0.5.Distribution services 4.8 1.2 0.4 4.5 23.9 1.0.Finance and business services 5.2 4.0 3.5 2.2 7.5 0.1.Personal and social services 1.6 2.4 1.5 0.2 10.7 0.0.Non-market services 2.8 2.2 1.6 1.5 11.6 0.1.Reallocation of labour effect 0.2

1995-2004TOTAL INDUSTRIES 1.0 -0.5 -0.8 1.8 100.0 1.8.Electrical machinery, post and communication 8.4 -2.3 -2.3 10.7 4.1 0.5.Manufacturing, excluding electrical -0.4 -2.4 -2.2 1.8 16.8 0.3.Other goods producing industries -1.3 -2.8 -2.8 1.5 16.9 0.3.Distribution services -0.8 -0.8 -1.3 0.5 23.4 0.1.Finance and business services 3.2 2.0 1.6 1.6 11.5 0.2.Personal and social services 0.6 0.8 0.4 0.2 13.1 0.0.Non-market services 1.6 1.7 1.4 0.2 14.2 0.0.Reallocation of labour effect 0.4



total industries


hours worked (%)



1980-1995MARKET ECONOMY 3.6 0.5 0.2 0.3 1.9 0.4 1.5 1.2.Electrical machinery, post and communication 9.3 0.7 0.4 0.3 2.8 1.2 1.6 5.8.Manufacturing, excluding electrical 2.9 -0.1 -0.3 0.2 2.1 0.2 1.9 0.9.Other goods producing industries 0.9 0.0 -0.2 0.3 1.4 0.2 1.2 -0.5.Distribution services 4.1 0.3 0.0 0.3 0.9 0.2 0.7 2.8.Finance and business services 6.2 2.1 1.6 0.4 3.1 1.6 1.5 1.1.Personal and social services 1.6 1.3 1.0 0.3 2.4 0.3 2.1 -2.1

1995-2004MARKET ECONOMY 0.7 -0.4 -0.7 0.4 0.7 0.3 0.3 0.4.Electrical machinery, post and communication 8.4 -0.8 -1.3 0.4 1.8 1.0 0.9 7.4.Manufacturing, excluding electrical -0.4 -0.8 -1.1 0.3 0.4 0.1 0.4 -0.1.Other goods producing industries -1.3 -1.2 -1.6 0.4 0.2 0.1 0.1 -0.3.Distribution services -0.8 -0.7 -1.1 0.4 0.2 0.1 0.1 -0.3.Finance and business services 3.2 1.1 0.8 0.3 1.7 1.2 0.5 0.5.Personal and social services 0.6 0.6 0.3 0.3 0.8 0.2 0.6 -0.8



– 38 –


0.0

2.0

4.0

6.0

8.0

10.0

12.0


1970-1995 1995-2004


-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0




LUXEMBOURG: CRAWLING AHEAD

– 39 –


• Luxembourg is a fast growing economy with above EU average rates of value added and employment growth.

• ...but with one of the lowest labor productivity growth rates

• This is mainly due to the negative performance of its main economic sector, the financial and business services with negative labor productivity growth since 1995.

Luxembourg currently has the highest level of labour productivity in the EU, surpassing even the US.. Compared to the EU-15 or EU-25 as a whole, Luxembourg seems to be an exception and for some an outlier in terms of growth and labor productivity level. Luxembourg has the highest labour productivity level in the EU. The annual average growth rate of gross value added is impressive, 4.3 percent compared to 2.1 for the EU-15. The same holds for employment, the annual average growth rate of total persons engaged is 3.6 percent compared to 1.2 percent. The sector level figures are even more striking, 11.5 percent compared to 6.3 percent for the GVA growth rate in the electrical machinery, post and telecommunication sector. The employment grew at an average rate of 7.4 percent in the finance and business sector compared to 3.6 percent in the EU-15. But this sustain rise in employment implied low labor productivity gains. This is the case in the finance and business services sector where labor productivity decreased on average by -3.3 percent compared to 0 percent for the EU-15. At national level, the labor productivity is mainly driven by the electrical machinery, post and communication sector (8.4%) and by the manufacturing sector (3%). Multifactor productivity growth contributes negatively to gross value added improvements; the contribution is negative on average for services but positive for industries. The main contributor to GVA growth is capital input growth (mainly non-ICT capital), except for the finance and other business services sector and the personal and social services where labor input growth is the main contributor. Two important issues to keep in mind are the following. Productivity measurement in services and especially in the finance sector remains a challenge. The finance sector is about 24 percent of total value added. Further improvements in this field may dramatically change the labor productivity results of Luxembourg. Second, given the size and the openness of the economy, productivity time series are highly volatile so need to be interpreted cautiously.

Contact person: John Haas, Statistics Luxembourg (STATEC), [email protected]


– 40 –


Gross Value Added


Total hours

worked

GVA per hour

worked1970-1995TOTAL INDUSTRIES 2.8 0.1 -0.2 3.0 100.0 3.0.Electrical machinery, post and communication 5.2 0.5 0.0 5.2 4.1 0.2.Manufacturing, excluding electrical 2.4 -1.0 -1.6 4.0 21.1 1.0.Other goods producing industries 1.8 -2.0 -1.9 3.7 21.1 1.0.Distribution services 3.4 1.2 0.5 3.0 19.9 0.5.Finance and business services 4.5 3.7 2.9 1.6 6.4 0.1.Personal and social services 2.1 1.4 0.5 1.6 9.8 0.1.Non-market services 2.6 2.2 1.5 1.1 17.6 0.1.Reallocation of labour effect -0.1

1995-2004TOTAL INDUSTRIES 2.1 0.6 0.5 1.6 100.0 1.6.Electrical machinery, post and communication 3.3 -1.8 -1.8 5.1 3.6 0.2.Manufacturing, excluding electrical 2.9 -0.9 -1.6 4.5 15.3 0.8.Other goods producing industries 2.1 -1.1 -1.8 3.9 15.6 0.7.Distribution services 2.3 0.7 0.6 1.7 21.3 0.4.Finance and business services 3.5 5.3 5.5 -2.0 11.7 -0.2.Personal and social services 1.2 1.3 1.2 0.0 11.2 0.0.Non-market services 0.9 1.2 1.2 -0.4 21.4 -0.1.Reallocation of labour effect -0.2


in total industries


hours worked (%)



1980-1995MARKET ECONOMY 6.1 1.2 n.a. n.a. 1.6 0.5 1.1 3.2.Electrical machinery, post and communication 8.5 0.6 n.a. n.a. 8.1 1.7 6.4 -0.2.Manufacturing, excluding electrical 3.9 -0.6 n.a. n.a. 0.1 0.1 0.0 4.4.Other goods producing industries 2.7 1.4 n.a. n.a. 0.4 0.3 0.1 0.9.Distribution services 5.8 1.2 n.a. n.a. 1.4 0.3 1.1 3.2.Finance and business services 11.7 2.9 n.a. n.a. 2.8 1.5 1.4 6.0.Personal and social services 1.5 1.5 n.a. n.a. 1.3 0.1 1.2 -1.4

1995-2004MARKET ECONOMY 4.3 2.3 n.a. n.a. 2.4 0.9 1.5 -0.4.Electrical machinery, post and communication 11.5 0.9 n.a. n.a. 4.7 2.4 2.3 5.9.Manufacturing, excluding electrical 2.5 -0.3 n.a. n.a. 0.6 0.4 0.3 2.2.Other goods producing industries 3.2 1.2 n.a. n.a. 1.2 0.4 0.8 0.8.Distribution services 4.0 2.2 n.a. n.a. 2.9 0.8 2.1 -1.1.Finance and business services 4.8 3.9 n.a. n.a. 3.1 1.7 1.5 -2.2.Personal and social services 0.4 1.9 n.a. n.a. 1.4 0.5 0.9 -3.0



– 41 –


-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0


1970-1995 1995-2004


-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0




THE NETHERLANDS: KEEPING GROWTH UP DUE TO SHIFT TO PRODUCTIVE MARKET SERVICES

– 42 –


• The larger contribution of employment growth and slower growth of labour productivity is primarily due to the non-market services sector, whereas market services helped to keep productivity growth up.

• The greater use of ICT in combination with MFP growth has raised the contribution of the distribution services, even though the contribution of labour composition declined

• To increase productivity growth in the future, the Dutch economy should focus on further adoption of ICT, better use of labour skills and continued reforms in labour and product markets

Over the period 1970-2004 the Dutch economy has grown at approximately 2.5 per cent, with little difference in aggregate growth between the two sub periods, 1970-1995 and 1995-2004. However, during the 1970-1995 period growth was mainly driven by labour productivity growth, whereas in the period 1995-2004 total hours were nearly as important for economic growth as productivity. But leaving the large non-market service sector aside, the picture for the Netherlands looks considerably better. In particular the significant acceleration in labour productivity in the Distribution services (including trade and transportation) has helped to raise productivity in the market economy. While the ELECOM sector (which includes ICT production and communication services) also shows rapid productivity growth, its contribution to aggregate productivity is limited due to the small size of the industry, and it remained constant as labour input in this sector declined. Hence, without making ‘it’ in large proportions, just getting used to ‘it’ has led to a relatively good growth performance of the Dutch market economy relative to other EU member states. When focusing on the sources of growth in the market economy, the two major contributors to growth are the shift of capital from non-ICT to ICT capital and the improvement in multi factor productivity (MFP) growth in particular in the distribution services. While MFP growth in financial and business services is still negative and in personal and social services only slightly positive, the MFP performance of those sectors has also improved relative to the pre-1995 period. However, in particular in financial and business services, the rapid increase in the contribution of ICT capital is not matched by a sufficiently rapid MFP growth. The positive growth contributions from ICT and MFP are in part dampened by a slowdown in the contribution of labour composition in the distribution services. In personal and social services, the contribution of labour composition even turned negative. This might signal that employment growth in some services has shifted more towards low skilled employees, which is only offset by an accelerated contribution from skill improvements in goods producing industries. Despite the positive performance of productivity in the market economy in the Netherlands, growth has remained lower than in the U.S.. To some extent this is the result of the originally higher level of productivity in the Netherlands and a recovery in employment growth inducing a – at least temporarily – lower capital intensity. The best way forward is to continue the adoption of new technologies like IT, to increase the availability of sufficient human capital (including adequate policies to deal with the productivity effects of ageing of the workforce) as well as (private) investments in R&D to be able to absorb new knowledge. If market failures are evident, policies may also focus on removing those regulatory and structural impediments on product, labour and capital markets that still might hinder competition between firms.

Contact person: Henry van der Wiel, Netherlands Bureau for Economic Policy Analysis (CPB), [email protected]


– 43 –


Gross Value Added


Total hours

worked

GVA per hour

worked1970-1995TOTAL INDUSTRIES 2.6 1.1 0.1 2.5 100.0 2.5.Electrical machinery, post and communication 3.0 -0.6 -1.2 4.2 3.8 0.2.Manufacturing, excluding electrical 2.6 -0.8 -1.6 4.2 17.7 0.9.Other goods producing industries 2.1 -0.8 -1.4 3.4 14.8 0.6.Distribution services 2.5 1.1 0.3 2.2 22.0 0.5.Finance and business services 4.1 3.4 2.9 1.2 11.4 0.1.Personal and social services 0.1 2.4 0.9 -0.8 8.2 -0.1.Non-market services 2.9 2.0 0.9 1.9 22.1 0.3.Reallocation of labour effect -0.1

1995-2004TOTAL INDUSTRIES 2.5 1.5 1.1 1.4 100.0 1.4.Electrical machinery, post and communication 8.1 -0.1 -0.1 8.2 2.9 0.2.Manufacturing, excluding electrical 1.8 -0.9 -1.1 2.9 12.8 0.4.Other goods producing industries 0.9 0.2 0.5 0.4 12.3 0.1.Distribution services 3.7 1.5 0.5 3.2 22.1 0.7.Finance and business services 3.5 3.0 2.7 0.8 18.9 0.1.Personal and social services 2.0 0.9 1.3 0.7 9.6 0.1.Non-market services 1.7 2.6 2.1 -0.4 21.4 -0.1.Reallocation of labour effect -0.1


in total industries


hours worked (%)



1980-1995MARKET ECONOMY 2.1 0.8 0.6 0.2 1.1 0.4 0.6 0.3.Electrical machinery, post and communication 2.8 -0.4 -0.8 0.4 1.5 1.0 0.5 1.6.Manufacturing, excluding electrical 2.4 -0.3 -0.6 0.2 0.8 0.4 0.4 1.9.Other goods producing industries 0.9 -0.3 -0.3 0.0 0.7 0.1 0.6 0.4.Distribution services 2.6 1.2 0.8 0.4 0.8 0.3 0.5 0.6.Finance and business services 3.7 2.9 3.0 -0.1 2.0 1.0 1.0 -1.1.Personal and social services -1.2 2.1 1.9 0.2 0.9 0.3 0.6 -4.0

1995-2004MARKET ECONOMY 2.8 0.8 0.5 0.2 1.0 0.7 0.3 1.0.Electrical machinery, post and communication 8.1 0.8 -0.1 0.9 2.6 1.3 1.3 4.6.Manufacturing, excluding electrical 1.8 -0.4 -0.7 0.3 0.4 0.4 0.1 1.8.Other goods producing industries 0.9 0.9 0.3 0.6 0.5 0.2 0.3 -0.5.Distribution services 3.7 0.5 0.4 0.2 0.9 0.5 0.3 2.3.Finance and business services 3.5 1.9 1.9 0.1 1.7 1.2 0.5 -0.2.Personal and social services 2.0 0.8 1.0 -0.2 0.8 0.6 0.2 0.4



– 44 –


-2.0-1.00.01.02.03.04.05.06.07.08.09.0


1970-1995 1995-2004


-2.0-1.00.01.02.03.04.05.06.07.08.09.0




POLAND: MFP DRIVEN GROWTH IN MANUFACTURING AND CAPITAL INPUT DRIVEN GROWTH IN SERVICES

– 45 –


• Labour productivity growth was higher than value added growth and demand for labour declined despite already high unemployment rates.

• Employment increased significantly only in ‘Finance and business services’ but this only had a small impact on overall employment due to its low share.

• Gross value added growth was mainly driven by multifactor productivity in goods producing industries and capital inputs in service industries.

• About half of labour productivity growth can be explained by goods producing industries with distribution services accounting largely for the remaining part.

Poland, the largest new member state entering the European Union in 2004 was the first country hit by the transformation crisis at the beginning of the 1990s. The country started to recover rapidly and reached average growth rates of around 5 percent in the mid-nineties. These high growth rates declined at the end of the nineties as the country was hit by a secondary transformation crisis. From the trough in 2001 the economy recovered only in 2003 and employment started to increase. The country is still characterised by a high share of the agricultural sector in total employment. Restructuring towards higher tech manufacturing sectors was slower compared to other new member states. The longer-run performance, with a gross value added growth rate of 3.8 percent over the period 1995-2004, is comparable to other new member states. As gross value added per hour worked was growing at a rate of 4.3 percent a year the number of persons engaged was declining by –0.4 percent a year; the number of total hours worked was declining even faster. Together with employment losses mainly in the oversized agricultural sector the unemployment rate reached about 18 percent in 2005 according to LFS. Similar to other new member states labour productivity growth rates have been highest in ‘Electrical machinery, post and telecommunication’ and ‘Manufacturing, excluding electrical’ with 11.4 and 8.4 percent per year respectively. However, despite high growth rates of value added in these sectors (9.7 and 5.9 percent per year) the number of total hours worked declined. Strong positive employment growth occurred only in ‘Finance and business services’ with about 5 percent per year. Productivity growth in the ‘Other goods producing industry’ - which was the largest sector in terms of total hours worked - reached only 1.3 percent and thus its contribution to labour productivity growth was only 0.5 percentage points. ‘Manufacturing, excluding electrical’ (1.5 percent) and ‘Distribution services’ (0.9 percent) contributed most to labour productivity growth of the total economy. In the aggregate market economy, capital and multifactor productivity growth contributed most to the 4.4 percent growth of value added. Changes in the labour composition contributed positively as well, whereas the contribution of total hours worked has been negative. Looking at particular sectors one can see that the contribution of multifactor productivity to value added growth was particularly strong in the goods producing sectors. In ‘Other goods producing industries’ capital accounts for a larger contribution in relative terms due to a strong negative contribution of the labour input indicating strong substitution effects. In service industries the contribution of capital inputs to gross value added growth dominated while multifactor productivity played a minor role. In these sectors the contribution of labour input was positive in ‘Finance and business services’ and ‘Personal and social services’ however negligible in ‘Distribution services’. Finally, the contribution of labour composition changes was positive in all industries. Contact person: Robert Stehrer, The Vienna Institute for International Economic Studies (WIIW), [email protected]


– 46 –


Gross Value Added


Total hours

worked

GVA per hour

worked1995-2004TOTAL INDUSTRIES 3.8 -0.4 -0.5 4.3 100.0 4.3.Electrical machinery, post and communication 9.7 -1.5 -1.7 11.4 2.3 0.3.Manufacturing, excluding electrical 5.9 -2.5 -2.5 8.4 16.4 1.5.Other goods producing industries 0.6 -0.7 -0.7 1.3 40.1 0.5.Distribution services 4.4 0.1 -0.5 4.9 17.7 0.9.Finance and business services 8.0 5.0 4.9 3.1 5.5 0.1.Personal and social services 2.1 1.5 0.7 1.4 3.6 0.0.Non-market services 1.7 -0.2 0.1 1.5 14.5 0.2.Reallocation of labour effect 0.7


in total industries

Average share in




1995-2004MARKET ECONOMY 4.4 -0.3 -0.5 0.2 2.2 n.a. n.a. 2.5.Electrical machinery, post and communication 9.7 -0.7 -1.0 0.2 2.6 n.a. n.a. 7.9.Manufacturing, excluding electrical 5.9 -1.4 -1.6 0.2 0.6 n.a. n.a. 6.8.Other goods producing industries 0.6 -1.4 -1.7 0.3 0.7 n.a. n.a. 1.4.Distribution services 4.4 -0.1 -0.3 0.2 3.8 n.a. n.a. 0.7.Finance and business services 8.0 2.4 2.1 0.2 4.7 n.a. n.a. 0.9.Personal and social services 2.1 1.3 1.0 0.3 0.9 n.a. n.a. -0.1



-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0




SLOVAK REPUBLIC: GROWTH DRIVEN BY GOODS PRODUCING INDUSTRIES

– 47 –


• All manufacturing industries were performing well in terms of labour productivity but only ‘Electrical machinery, post and communication’ succeeded in having both high output and employment growth.

• Within services sectors productivity growth rates were substantial only in personal and non-market services with these sectors showing declines in employment.

• Strong employment growth in market services (distribution, finance and business services) showed up in low productivity growth in these industries.

• Overall labour productivity growth in the market economy was mainly driven by goods producing industries.

The Slovak Republic is known as having conducted very active policies in attracting foreign direct investment and opening up to international trade. This paid off in high GDP growth after 1995, albeit followed by a period of rather low growth between 1999 and 2000. Since then the economy succeeded in recovering from this temporary slump and is now again reaching growth rates close to 7 percent. Over the period 1995-2004, the average growth rate of gross value added was 3.6 percent per year and thus relatively similar to other new member states. Labour productivity (gross value added per hour worked) growth was at a higher level with 4.8 percent. There was a decrease in demand for labour which in particular shows up in the number of total hours worked which declining at a rate of –1.2 percent per year. Labour productivity growth was particularly strong in manufacturing industries such as electrical machinery and transport equipment, also due to technology upgrading effects of foreign direct investments. Growth of gross value added per hour worked amounted to 8.1 and 8.2 percent in ‘Electrical machinery, post and communication’ and ‘Other goods producing industries’ and were only slightly lower in ‘Manufacturing, excluding electrical’. Only in the first of these industries was overall gross value added growth strong enough to yield positive effects on employment: the number of total persons employed increased by 1.3 percent in this industry. The growth of gross value added was lower in the two other goods producing industries (with 4.8 percent in ‘Manufacturing, excluding electrical’ and 3.7 percent in ‘Other goods producing industries’), and was accompanied by strong negative employment growth rates. With respect to services sectors labour productivity was growing significantly only in ‘Personal and social services’ with 4.5, and in ‘Non-market services’ with 4.9 percent per year whereas it was much lower in ‘Distribution services’ (1.3 percent) and at –1.1 percent even negative in ‘Finance and business services’. These two industries attracted employment to a strong extent, which did not yet show up in significantly higher output growth. The two goods producing industries with the highest share in total hours worked ‘Manufacturing, excluding electrical’ and ‘Other goods producing industries’ account for about two thirds of overall labour productivity growth. The best performing industry with respect to gross value added growth, i.e. ‘Electrical machinery, post and communication’, contributed only 0.3 percentage points due to its relatively low share of 4.4 percent in total hours worked. Within service industries only ‘Non-market services’ with 1.1 percentage points contributed significantly to labour productivity growth.



– 48 –


Gross Value Added


Total hours

worked

GVA per hour

worked1995-2004TOTAL INDUSTRIES 3.6 -0.3 -1.2 4.8 100.0 4.8.Electrical machinery, post and communication 9.0 1.3 0.9 8.1 4.4 0.3.Manufacturing, excluding electrical 4.8 -1.8 -2.0 6.8 22.1 1.5.Other goods producing industries 3.7 -3.5 -4.5 8.2 16.5 1.6.Distribution services 2.5 2.5 1.2 1.3 20.9 0.2.Finance and business services 2.1 4.3 3.2 -1.1 7.7 -0.1.Personal and social services 2.8 -1.0 -1.7 4.5 6.7 0.3.Non-market services 3.0 -0.3 -1.9 4.9 21.7 1.1.Reallocation of labour effect -0.3


in total industries

Average share in


SLOVENIA: GROWTH DRIVEN BY MFP IN MANUFACTURING

– 49 –


• High growth in manufacturing industries and business services underlies the smooth transition towards EU membership.

• Labour productivity growth was mainly driven by goods producing industries.

• Multifactor productivity was the main contributor to growth in manufacturing industries and Non-ICT capital was the most important contributor to growth in market services.

• ICT capital input explains a large part of growth in ‘Electrical machinery, post and communication’.

Slovenia’s path towards a market economy and EU accession has been characterised by a rather smooth transition and a gradual reform strategy. GDP growth has been unspectacular yet sustained. The country is now the first of the new member states having adopted the euro on 1 January 2007. Over the period 1995-2004 gross value added was growing at 3.8 percent per year on average. Labour productivity, i.e. gross value added per hour worked, was growing even faster (at 4.3 percent per year) and thus the number of persons engaged and total hours worked slightly declined. As in other new member states the overall gross value added growth was driven mainly by goods producing industries. Although both gross value added growth with 7.4 per year, and labour productivity growth with 6.6 percent was the highest in ‘Electrical machinery, post and communication’ the overall contribution of this sector to labour productivity growth as the share in total hours worked is only 4.2 percent. In this industry employment was rising as opposed to the goods producing industries which both have been characterised by a strong decline in labour demand. These sectors have shown a robust labour productivity growth (6.1 and 5.0 percent per year), which, given their high share in total hours worked, combined contributed more than two thirds of overall labour productivity growth. The second best performing sector in terms of gross value added growth was ‘Finance and business services’ with 6.1 percent average per year; in this sector also employment was rising strongly so that labour productivity growth was only 3.6 percent. In the other service industries growth rates have been less spectacular and have been higher than overall growth only in ‘Personal and social services’. For the aggregate market economy gross value added was growing by 4.1 percent per year. This was driven by capital input which contributed 1.6 percentage points, and even more so by multifactor productivity contributing 2.5 percentage points. Labour input contributed nothing as the negative contribution in hours worked was compensated by changes in the labour composition. When splitting up the contribution of capital into ICT and Non-ICT components, the contribution of the latter with 1.1 percentage points was higher compared to the ICT contribution due to the larger share of Non-ICT capital. In general, the contribution of multifactor productivity was more important in the goods producing industries compared to service industries with the exception of ‘Personal and social services’. In market services the contributions of Non-ICT capital have been large in relative terms. ICT capital has been especially important in ‘Electrical machinery, post and communication’ but played a minor role in the goods producing industries. The change in labour composition had positive effects in all industries.



– 50 –


Gross Value Added


Total hours

worked

GVA per hour

worked

1995-2004TOTAL INDUSTRIES 3.8 -0.2 -0.5 4.3 100.0 4.3.Electrical machinery, post and communication 7.4 0.7 0.8 6.6 4.2 0.3.Manufacturing, excluding electrical 4.4 -1.9 -1.6 6.1 24.7 1.6.Other goods producing industries 2.2 -1.9 -2.8 5.0 24.6 1.3.Distribution services 2.3 -0.4 -0.5 2.8 17.1 0.5.Finance and business services 6.1 2.7 2.5 3.6 8.8 0.3.Personal and social services 4.5 1.4 0.9 3.6 6.1 0.2.Non-market services 3.1 2.4 2.7 0.4 14.4 0.1.Reallocation of labour effect 0.1


in total industries

Average share in




1995-2004MARKET ECONOMY 4.1 0.0 -0.2 0.2 1.6 0.5 1.1 2.5.Electrical machinery, post and communication 7.4 0.8 0.6 0.2 3.2 2.6 0.7 3.4.Manufacturing, excluding electrical 4.4 -0.8 -1.0 0.2 1.6 0.3 1.2 3.7.Other goods producing industries 2.2 -0.7 -1.1 0.4 0.4 0.3 0.1 2.6.Distribution services 2.3 -0.2 -0.3 0.1 1.5 0.1 1.4 1.1.Finance and business services 6.1 1.9 1.8 0.1 2.7 1.1 1.7 1.4.Personal and social services 4.5 1.1 0.9 0.2 1.0 0.4 0.6 2.4



-2.0-1.00.01.02.03.04.05.06.07.08.0




SPAIN: A SUCCESS STORY SHADOWED BY A POOR PRODUCTIVITY PERFORMANCE

– 51 –


• Spanish economic performance has been remarkable since it joined the European Union in 1986. Thus, it offers an example for new entrants on what can be accomplished in a relatively short time span.

• Its ability to generate employment has been astonishing, allowing the country to move from a very high unemployment environment (over 23%) to become the preferred destination for EU (as well as non-EU) migration, together with the increase of nationals’ activity rate.

• A scant productivity performance, partly aggravated by a growing construction industry, is its Achilles heel. Spanish growth has been mainly based on transpiration rather than inspiration, while the beneficial impacts of ICT are still to come.

• Most likely, over the next years, the success of the Spanish growth will require a reversal of the sources of growth, going from labor creation to multifactor productivity.

The Spanish economy showed one of the most dynamic behavior patterns throughout the most recent period, 1995-2004. Value Added grew at an annual rate (3.4%) higher than the average for the EU-15 older member States (2.1%), while employment growth ranked near the top of all the countries considered. Only Luxembourg presented higher growth rates in terms of hours worked. However, it paid a high price for this picture of success: it presented the lowest labor productivity growth rate of the 26 countries covered by the EUKLEMS database. Notice that during the 1970-1995 period, labor productivity grew at a fast pace (2.9% per year). Nevertheless, this achievement was only apparently successful since it originated almost exclusively in two groupings: “Other goods producing industries” and “Manufacturing (excluding electrical)”. Columns 2 and 3 in table 1 provide an interesting insight: the important increase in productivity occurred parallel with employment destruction in these two aggregations, especially intense in agriculture (included in “Other goods producing industries”. In fact, if this sector was excluded, productivity growth would have dropped from 2.9% to 0.9%! The 1995-2004 period experienced a productivity slowdown but in a context of intense employment creation. The seven sector aggregations shown in table 1 enjoyed an employment upsurge only comparable with the “wonderful sixties”, with the construction sector taking the leading role (7.7% annual growth rate). This sector was also mainly responsible for the downturn in productivity, together with “Hotels and Restaurants”, two crucial sectors for the Spanish economy. It is interesting to note the positive behavior of the high tech sector, the only one showing an unquestionable increase in labor productivity (2.6%) accompanied by substantive employment creation (2.1%). The outstanding record in terms of Value added growth in the 1995-2004 period was possibly due to the major effort made in terms not only of employment creation but also in increasing the activity rate, improving labor qualification, as well as striving towards capital accumulation. Thus, the Spanish economy grew thanks to transpiration, since inspiration -measured by MFP- contributed negatively to growth, making Spain the country with the highest negative MFP contribution of all the countries included in the database. For its part, ICT capital contribution was about one-third that of Non-ICT capital and particularly marked in the high tech sector, which was also the sector showing the highest labor composition/quality contribution. However these positive effects did not preclude its sharing a negative MFP growth with the other sectors. The beneficial effects of ICT are, thus, still to come. Contact person: Matilde Mas, Instituto Valenciano de Investigaciones Economicas, S.A. (IVIE), [email protected]


– 52 –


Gross Value Added


Total hours

worked

GVA per hour

worked1970-1995TOTAL INDUSTRIES 2.9 0.3 0.0 2.9 100.0 2.9.Electrical machinery, post and communication 6.2 1.0 0.6 5.6 2.4 0.1.Manufacturing, excluding electrical 2.9 -0.5 -0.8 3.7 19.7 0.8.Other goods producing industries 2.4 -2.5 -2.8 5.3 27.3 2.0.Distribution services 2.9 1.2 0.8 2.1 19.4 0.4.Finance and business services 3.7 4.6 4.3 -0.6 5.4 0.0.Personal and social services 2.1 1.0 1.0 1.1 11.8 0.1.Non-market services 2.7 3.7 3.1 -0.4 13.9 0.0.Reallocation of labour effect -0.4

1995-2004TOTAL INDUSTRIES 3.4 3.3 3.2 0.3 100.0 0.3.Electrical machinery, post and communication 4.6 2.0 2.1 2.6 2.5 0.1.Manufacturing, excluding electrical 2.4 2.0 1.9 0.5 16.7 0.1.Other goods producing industries 4.1 4.2 4.2 -0.1 19.3 0.0.Distribution services 3.4 3.3 3.2 0.2 20.9 0.0.Finance and business services 5.0 4.4 4.3 0.7 9.3 0.1.Personal and social services 3.0 3.7 3.8 -0.8 13.5 -0.1.Non-market services 3.0 2.8 2.4 0.6 17.8 0.1.Reallocation of labour effect 0.0


in total industries

Average share in




1980-1995MARKET ECONOMY 2.4 0.3 0.0 0.3 1.4 0.4 1.0 0.7.Electrical machinery, post and communication 5.8 1.0 0.3 0.7 2.0 0.9 1.1 2.8.Manufacturing, excluding electrical 1.8 -0.6 -0.9 0.3 1.2 0.3 0.9 1.3.Other goods producing industries 2.4 -1.1 -1.3 0.2 0.6 0.1 0.6 2.9.Distribution services 2.3 0.6 0.2 0.3 1.6 0.4 1.2 0.1.Finance and business services 3.4 3.1 2.9 0.3 2.7 1.5 1.2 -2.4.Personal and social services 1.9 2.0 1.7 0.4 1.6 0.5 1.1 -1.7

1995-2004MARKET ECONOMY 3.6 2.6 2.2 0.4 1.9 0.5 1.4 -0.9.Electrical machinery, post and communication 4.6 1.7 1.1 0.6 3.7 1.4 2.3 -0.7.Manufacturing, excluding electrical 2.4 1.6 1.3 0.3 1.3 0.3 1.0 -0.4.Other goods producing industries 4.1 3.2 3.0 0.3 1.6 0.1 1.5 -0.7.Distribution services 3.4 2.4 2.1 0.4 2.6 0.7 1.9 -1.6.Finance and business services 5.0 3.3 2.8 0.5 1.6 1.0 0.6 0.1.Personal and social services 3.0 2.9 2.6 0.3 2.0 0.3 1.8 -2.2



– 53 –


-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0


1970-1995 1995-2004


-3.0-2.0-1.00.01.02.03.04.05.06.0




SWEDEN: RAPID PRODUCTIVITY GROWTH DRIVEN BY ICT

– 54 –


• Sweden has again found the fast growth track, shown by a labour productivity growth in the market industries of 3.1 percent per year during 1995-2004.

• It has mainly been driven by ICT, with a very high multifactor productivity growth in the ICT industries and ICT-capital contributing more to output growth than other forms of capital.

• The increase in labour quantity and quality has gone mostly to the finance and business service industries.

The time period 1995-2004 has been a period of recovery for the Swedish economy, with a growth rate of 2.3 percent for labour productivity. After having set the best growth record for 100 years from 1870-1970, only rivalled by Japan, the Swedish economy left the growth track and become quite stagnant for two and a half decades. Beginning in the middle of the 1980s to the middle of the 1990s a series of reforms of the Swedish economy was implemented. This was complemented by the Swedish membership in the EU 1995. After the deep recession in the early 1990s a successful turn around of the public finances occurred. According to most observers these were the major reason behind the rather remarkable improvement of the growth performance of the Swedish economy during the last 13 years, from 1993-2006. The Swedish economy was severely hit by the burst of the IT-bubble and 2001 was a very bad year for the ICT industries and in particular the Telecom industry and ICT service industry. Their recovery took some time; the former did not recover until 2004 and the latter in 2006. The increase in Sweden’s real GDP has been somewhat less impressive since the loss of terms of trade during this period has been substantial. This is mostly due to the increase in oil prices and the fast deterioration of the prices of the telecom product industry. The average growth in gross value added in the Swedish market industries during this period was 3.3 percent. The main factors behind this growth is the relatively high growth in multifactor productivity and capital input, at 1.5 and 1.3 percentage points respectively. Only 0.6 percentage points is due to the growth in hours worked and the effects of changes in labour composition respectively. Worth noticing is the fact that the growth in ICT-capital has been more important than the growth in non-ICT capital, though the difference is quite small. One also notices that the effect of changes in labour composition has been of more importance than the growth in total hours worked. Three industries are the main contributors to overall labour productivity, electric machinery, post and communication, other manufacturing and distribution, contributing 0.5, 0.6 and 0.6 percentage points respectively. The other sectors contributed somewhat marginal 0.1 to 0.2 percentage points. The electric machinery, post and communication sector had during this time period, by far, the highest growth in gross value added at 10.3 percent; this is a sector of great importance for the Swedish economy. Other manufacturing and distribution have displayed the largest contributions to total labour productivity and together explained over half of the growth rate. Most industries experienced negative growth rates in total hours worked, with the significant exception of Finance and business services where total hours worked increased by 3.0 percent per year. This growth in both persons engaged and hours worked explains why this sector showed the second highest growth in gross value added despite its poor performance on labour productivity growth.

Contact persons: Hans-Olof Hagén and Tomas Skytesvall, Statistics Sweden, [email protected] and [email protected]


– 55 –


Gross Value Added


Total hours

worked

GVA per hour

worked1995-2004TOTAL INDUSTRIES 2.5 0.5 0.2 2.3 100.0 2.3.Electrical machinery, post and communication 10.3 -0.9 -1.1 11.4 4.2 0.5.Manufacturing, excluding electrical 3.2 -0.5 -0.6 3.8 16.0 0.6.Other goods producing industries 0.3 -0.3 -0.6 0.9 10.4 0.1.Distribution services 2.8 0.4 -0.1 2.9 18.6 0.6.Finance and business services 4.2 3.8 3.0 1.1 11.1 0.1.Personal and social services 1.7 1.1 1.0 0.6 8.9 0.1.Non-market services 0.6 0.1 0.0 0.7 30.8 0.2.Reallocation of labour effect 0.2



total industries


hours worked (%)



1995-2004MARKET ECONOMY 3.3 0.6 0.2 0.4 1.3 0.7 0.6 1.5.Electrical machinery, post and communication 10.3 -0.4 -1.2 0.7 1.7 1.1 0.7 9.0.Manufacturing, excluding electrical 3.2 0.1 -0.3 0.3 1.4 0.6 0.9 1.6.Other goods producing industries 0.3 0.0 -0.2 0.2 0.5 0.1 0.4 -0.2.Distribution services 2.8 0.1 -0.1 0.2 1.4 0.7 0.7 1.3.Finance and business services 4.2 2.4 1.9 0.5 1.4 1.2 0.2 0.4.Personal and social services 1.7 1.1 0.8 0.3 0.6 0.4 0.2 -0.1



-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0




UNITED KINGDOM: HAS THE TORTOISE BECOME A HARE?

– 56 –


• There has been an acceleration in output growth since 1995, but also one in labour input - the past decade is the first time since the 1960s that the UK has witnessed an expansion in employment. The net impact is that labour productivity growth from 1995-2004 is slightly down on that achieved from 1970-95.

• Labour productivity growth has accelerated in industries that produce ICT and in selected market service sectors, namely distribution, financial and business services

• Inputs account for most of the growth in output, with increased contributions from higher investment in ICT capital and human capital

• There are signs of an acceleration in MPF growth in the very recent past, since about 2000, in market service activities.

A common perception of the UK economy is one of poor relative productivity performance for most of the post-war period but a reversal in the past decade. Is this perception correct? Examination of the EUKLEMS data point to signs of a UK turnaround, although not yet on a scale experienced by the US. Table 1 illustrates the concentration of UK ‘success’ in a few sectors, namely, Electrical machinery, post and communication, Distribution services and Financial and business Services. These three sectors combined account for 75% of UK labour productivity between 1995 and 2004. Excluding the poorly measured non-market services, Chart 1 clearly illustrates the changing importance of these three sectors in contributing to market economy labour productivity growth since 1995, largely at the expense of manufacturing, dominant in earlier periods. In considering the sources of output growth, Table 2 shows that there has been a pronounced rise in the contribution of ICT capital but the acceleration is greatest in those sectors that experienced rising labour productivity growth. There has also been a general trend towards hiring more productive workers - the labour composition entry in Table 2 - mainly due to higher average levels of human capital. In contrast to earlier periods hours worked have also been rising in aggregate, but this hides a large drop in manufacturing employment, continuing trends from earlier periods, compensated by significant increases in market services. Finally there has been a small decline in the contribution of non-ICT capital comparing the recent decade with earlier periods. Contributions of inputs are illustrated in Chart 2 for the later period. The net effect has been a reduction in MFP growth comparing the two time periods, with an acceleration only apparent in Financial and business services. Underlying these figures, however, is an acceleration in MFP growth in market service sectors comparing recent years (2000-04) with the second half of the 1990s, concentrated in Distribution services as well as Financial and business services. In conclusion therefore the rise in output in the UK across time has been largely due to greater use of inputs, both investment and employment growth, with signs of an increase in MFP at the beginning of the century in some sectors. In addition since 1995, MFP growth rates are generally larger than those for the EU-15. Therefore while not quite yet a hare, the UK is no longer the tortoise of EU productivity growth.

Contact person: Mary O’Mahony, National Institute of Economic and Social Research (NIESR), [email protected]


– 57 –


Gross Value Added


Total hours

worked

GVA per hour

worked1970-1995TOTAL INDUSTRIES 1.8 0.1 -0.1 1.9 100.0 1.9.Electrical machinery, post and communication 3.7 -1.6 -1.7 5.4 5.0 0.3.Manufacturing, excluding electrical 0.3 -2.5 -2.6 2.8 22.2 0.8.Other goods producing industries 1.3 -1.4 -1.6 2.9 14.6 0.5.Distribution services 1.9 0.4 0.2 1.7 20.6 0.3.Finance and business services 3.9 2.9 2.9 1.1 11.5 0.1.Personal and social services 2.6 2.0 2.0 0.6 7.7 0.0.Non-market services 1.7 1.3 1.2 0.4 18.4 0.1.Reallocation of labour effect -0.3

1995-2004TOTAL INDUSTRIES 2.8 1.3 0.9 1.9 100.0 1.9.Electrical machinery, post and communication 6.7 -0.8 -1.3 8.0 3.9 0.3.Manufacturing, excluding electrical 0.0 -2.3 -2.4 2.4 14.4 0.4.Other goods producing industries 1.3 0.3 -0.2 1.6 11.0 0.2.Distribution services 3.5 1.1 0.6 2.9 21.0 0.6.Finance and business services 6.5 2.9 3.0 3.5 17.9 0.6.Personal and social services 2.7 2.8 2.4 0.3 10.8 0.0.Non-market services 1.4 1.9 1.8 -0.4 21.0 -0.1.Reallocation of labour effect -0.1



total industries


hours worked (%)



1980-1995MARKET ECONOMY 2.5 -0.3 -0.6 0.3 1.2 0.5 0.7 1.6.Electrical machinery, post and communication 4.6 -1.1 -1.5 0.3 1.8 1.3 0.5 4.0.Manufacturing, excluding electrical 1.0 -2.2 -2.4 0.2 0.3 0.3 0.0 2.9.Other goods producing industries 1.6 -1.0 -1.3 0.3 1.1 0.1 1.0 1.5.Distribution services 2.9 -0.2 -0.2 0.0 0.8 0.4 0.4 2.3.Finance and business services 4.0 2.7 2.1 0.6 2.3 1.0 1.3 -1.0.Personal and social services 3.1 1.8 1.3 0.5 1.8 0.4 1.3 -0.8

1995-2004MARKET ECONOMY 3.3 0.9 0.4 0.5 1.5 1.0 0.5 0.9.Electrical machinery, post and communication 6.7 -0.3 -0.8 0.5 2.9 2.7 0.2 4.1.Manufacturing, excluding electrical 0.0 -1.0 -1.8 0.8 0.5 0.5 0.0 0.5.Other goods producing industries 1.3 0.4 0.1 0.3 0.0 0.1 -0.1 0.9.Distribution services 3.5 0.8 0.4 0.4 1.6 0.8 0.8 1.2.Finance and business services 6.5 2.5 1.9 0.6 2.9 1.8 1.1 1.1.Personal and social services 2.7 2.2 1.7 0.5 1.3 0.5 0.9 -0.9



– 58 –


-1.00.01.02.03.04.05.06.07.08.09.0


1970-1995 1995-2004


-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0




UNITED STATES: THE SPREAD OF PRODUCTIVITY GROWTH TO ICT-USING SECTORS

– 59 –


• Aggregate labor productivity growth for the whole economy rose from 1.7 % per year during 1960-95 to 2.1 % (1995-2000), and then accelerated to 3.2% during 2000-04.

• While the contribution of ICT investment remained high, it slowed down considerably between 1995-00 and 2000-04

• Multifactor productivity growth in ICT-producing industries decelerated sharply after 2000 but MFP in ICT-using industries accelerated; the contribution of these industries to total MFP growth rose from -0.1 during 1995-00 to 0.6 during 2000-04.

In recent years there has been a remarkable turnaround in U.S. economic performance. Since 2000 the U.S. economy has seen the dot-com crash, the recession of 2001, and a major slowdown in investment. When breaking the 3.2% growth rate of GDP from 1995-2004 down into subperiods, it shows a fall in GDP growth from 4.1% during 1995-2000 to 2.5% during 2000-04. However, aggregate labour productivity (value added per hour worked) growth rose from 2.1% per year to 3.2%. These growth rates are in stark contrast to the earlier period 1970-95 when GDP growth was 2.8% and growth in GVA per hour was 1.3% (Table 1). The acceleration of labour productivity growth during the late 1990s was due to the huge increase in IT investment due to the falling prices from rapid MFP growth in the ICT-producing industries. During this period, MFP growth in the ICT-using industries, such as Communications and Business Services, was negative. ICT investment has slowed with a lower rate of decline in ICT prices and lower MFP growth in the ICT-producing industries. However, MFP growth in the ICT-using industries, such as Distribution and Financial and business services has risen substantially. The 1995-2004 period as a whole saw the market economy growing at 3.7% per year compared to 3.0% during 1980-95 (Table 2). This acceleration was mostly due to more rapid MFP growth (1.6% vs. 0.7%), with a small increase in the contribution of ICT capital. Hours growth was much slower, there were declines in the contributions of labor quality and non-ICT capital. In Figure 1 we see that the sectors that contributed the most to this acceleration were Finance, Business Services and Distribution. These sectors experienced big jumps in MFP growth (Table 2). During the boom period 1995-2004, the stellar performers were the ICT-producing and ICT-using sectors, GVA in Electrical machinery & Communications grew at 8.9% of which MFP contributed 6.9 points (Fig 2). This was followed by Finance and Business Services with 4.9% growth and Distribution with a 4.7% growth.

Contact persons: Dale Jorgenson, Mun Ho and Kevin Stiroh, Harvard University, [email protected]


– 60 –


Gross Value Added


Total hours

worked

GVA per hour

worked1970-1995TOTAL INDUSTRIES 2.8 1.7 1.5 1.3 100.0 1.3.Electrical machinery, post and communication 8.1 0.5 0.6 7.5 4.1 0.3.Manufacturing, excluding electrical 1.7 -0.2 -0.1 1.8 16.6 0.4.Other goods producing industries 0.7 0.9 0.6 0.1 11.7 0.0.Distribution services 4.0 1.8 1.4 2.6 21.0 0.6.Finance and business services 4.2 4.2 4.0 0.2 11.6 0.0.Personal and social services 2.4 2.6 2.5 0.0 11.2 0.0.Non-market services 2.4 1.9 1.8 0.6 23.7 0.1.Reallocation of labour effect -0.1

1995-2004TOTAL INDUSTRIES 3.2 1.1 0.8 2.4 100.0 2.4.Electrical machinery, post and communication 8.9 -1.2 -1.5 10.4 3.3 0.4.Manufacturing, excluding electrical 0.7 -2.2 -2.4 3.1 12.1 0.4.Other goods producing industries 1.6 1.6 1.5 0.1 10.8 0.0.Distribution services 4.7 0.7 0.3 4.4 20.5 0.9.Finance and business services 4.9 2.5 2.3 2.6 16.0 0.4.Personal and social services 2.6 1.6 1.6 1.0 13.1 0.1.Non-market services 2.1 1.5 1.3 0.8 24.1 0.2.Reallocation of labour effect 0.0


in total industries

Average share in




1980-1995MARKET ECONOMY 3.0 1.2 1.0 0.2 1.1 0.5 0.6 0.7.Electrical machinery, post and communication 6.6 0.1 -0.3 0.4 1.9 1.0 0.9 4.6.Manufacturing, excluding electrical 1.7 0.1 -0.2 0.3 0.6 0.3 0.3 0.9.Other goods producing industries 0.7 0.7 0.4 0.3 0.7 0.2 0.5 -0.7.Distribution services 3.9 1.3 1.2 0.2 1.2 0.6 0.6 1.3.Finance and business services 4.4 2.9 2.7 0.2 1.8 1.0 0.9 -0.3.Personal and social services 2.8 2.5 2.5 0.1 0.5 0.2 0.3 -0.2

1995-2004MARKET ECONOMY 3.7 0.7 0.3 0.3 1.4 0.8 0.6 1.6.Electrical machinery, post and communication 8.9 -0.3 -0.9 0.6 2.5 1.5 0.9 6.8.Manufacturing, excluding electrical 0.7 -1.1 -1.5 0.3 0.7 0.4 0.3 1.1.Other goods producing industries 1.6 1.0 0.9 0.1 0.9 0.2 0.6 -0.3.Distribution services 4.7 0.5 0.2 0.3 1.4 1.0 0.4 2.8.Finance and business services 4.9 2.0 1.6 0.4 2.0 1.2 0.7 0.9.Personal and social services 2.6 1.7 1.4 0.2 1.0 0.4 0.6 0.0



– 61 –


-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0


1970-1995 1995-2004


-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0




OTHER COUNTRIES: THE EU KLEMS PRODUCTIVITY REPORT

– 62 –

OTHER COUNTRIES

Cyprus Table 1 Gross Value Added, Labour Input and Labour Productivity, 1995-2004

Gross Value Added


Total hours

worked

GVA per hour

worked1995-2004TOTAL INDUSTRIES 3.4 1.4 1.3 2.0 100.0 2.0.Electrical machinery, post and communication 10.5 2.0 0.9 9.6 1.6 0.2.Manufacturing, excluding electrical 0.7 -2.8 -3.1 3.8 12.5 0.6.Other goods producing industries 2.8 -0.1 -0.5 3.3 21.4 0.8.Distribution services 3.2 1.7 2.0 1.2 24.1 0.3.Finance and business services 5.3 3.3 2.6 2.7 5.9 0.1.Personal and social services 2.9 3.2 4.5 -1.6 17.0 -0.2.Non-market services 3.4 3.1 2.6 0.8 17.5 0.1.Reallocation of labour effect 0.2


in total industries

Average share in


Estonia Table 1 Gross Value Added, Labour Input and Labour Productivity, 1995-2004

Gross Value Added


Total hours

worked

GVA per hour

worked1995-2004TOTAL INDUSTRIES 6.2 -0.7 -0.7 6.9 100.0 6.9.Electrical machinery, post and communication 9.8 -3.0 -2.8 12.6 4.2 0.6.Manufacturing, excluding electrical 7.7 -1.2 -0.8 8.5 20.8 1.9.Other goods producing industries 2.8 -2.4 -2.6 5.4 19.4 1.1.Distribution services 7.6 -0.7 -1.2 8.7 22.0 1.8.Finance and business services 4.9 -1.1 -1.0 5.9 3.2 0.2.Personal and social services 7.0 -0.5 -0.3 7.4 7.4 0.5.Non-market services 6.1 1.1 1.6 4.5 23.1 0.9.Reallocation of labour effect -0.2


in total industries


hours worked (%)

Greece Table 1 Gross Value Added, Labour Input and Labour Productivity, 1970-1995 and 1995-2004

Gross Value Added


Total hours

worked

GVA per hour

worked1970-1995TOTAL INDUSTRIES 2.6 0.9 0.9 1.8 100.0 1.8.Electrical machinery, post and communication 4.4 0.7 0.7 3.7 1.7 0.1.Manufacturing, excluding electrical 1.7 0.2 0.2 1.5 21.0 0.3.Other goods producing industries 1.4 -1.4 -1.4 2.7 35.9 1.3.Distribution services 3.4 2.5 2.5 0.8 17.9 0.1.Finance and business services 4.3 3.6 3.6 0.8 4.4 0.0.Personal and social services 2.9 3.6 3.6 -0.7 7.4 0.0.Non-market services 3.2 3.4 3.4 -0.3 11.7 0.0.Reallocation of labour effect 0.0

1995-2004TOTAL INDUSTRIES 3.4 0.5 0.5 2.9 100.0 2.9.Electrical machinery, post and communication 10.0 1.6 1.7 8.3 1.7 0.1.Manufacturing, excluding electrical 0.7 -1.3 -1.2 1.9 15.9 0.3.Other goods producing industries 2.5 -1.9 -1.9 4.3 25.0 1.2.Distribution services 5.4 1.0 0.9 4.5 22.0 1.0.Finance and business services 5.4 4.2 4.3 1.1 8.2 0.1.Personal and social services 5.4 2.0 1.8 3.6 11.4 0.4.Non-market services 1.7 2.2 2.3 -0.6 15.8 -0.1.Reallocation of labour effect -0.1


in total industries

Average share in



– 63 –


-2.0-1.00.01.02.03.04.05.06.07.08.09.0


1970-1995 1995-2004

Ireland Table 1 Gross Value Added, Labour Input and Labour Productivity, 1970-1995 and 1995-2004

Gross Value Added


Total hours

worked

GVA per hour

worked1970-1995TOTAL INDUSTRIES 3.8 0.8 0.2 3.6 100.0 3.6.Electrical machinery, post and communication 6.6 1.6 1.2 5.3 5.5 0.3.Manufacturing, excluding electrical 5.8 0.0 -0.6 6.4 19.2 1.3.Other goods producing industries 0.9 -1.4 -1.5 2.4 29.5 0.9.Distribution services 2.7 1.2 0.4 2.2 16.3 0.3.Finance and business services 4.4 5.0 4.4 0.0 6.0 0.0.Personal and social services 3.9 2.3 1.7 2.2 8.3 0.2.Non-market services 4.7 2.4 1.6 3.1 15.2 0.4.Reallocation of labour effect 0.3

1995-2004TOTAL INDUSTRIES 7.5 4.0 3.1 4.4 100.0 4.4.Electrical machinery, post and communication 10.0 2.9 2.3 7.7 6.4 0.5.Manufacturing, excluding electrical 9.0 0.1 -0.2 9.2 14.0 1.5.Other goods producing industries 6.9 3.8 2.3 4.6 23.1 1.1.Distribution services 6.4 5.0 3.7 2.7 17.3 0.4.Finance and business services 8.1 7.3 6.8 1.3 11.3 0.1.Personal and social services 5.4 4.8 3.6 1.8 10.6 0.2.Non-market services 4.8 4.2 3.7 1.1 17.4 0.2.Reallocation of labour effect 0.4


in total industries

Average share in



– 64 –


-2.0

0.0

2.0

4.0

6.0

8.0

10.0


1970-1995 1995-2004

Latvia Table 1 Gross Value Added, Labour Input and Labour Productivity, 1995-2004

Gross Value Added


Total hours

worked

GVA per hour

worked1995-2004TOTAL INDUSTRIES 5.5 0.4 0.2 5.4 100.0 5.4.Electrical machinery, post and communication 9.5 -3.8 -4.5 14.0 2.7 0.5.Manufacturing, excluding electrical 0.7 -1.7 -1.1 1.8 17.8 0.4.Other goods producing industries 3.7 -0.7 -2.7 6.4 16.9 1.2.Distribution services 6.2 2.4 3.4 2.9 23.8 0.6.Finance and business services 7.2 5.8 5.2 2.0 5.3 0.1.Personal and social services 7.5 2.2 0.7 6.7 7.1 0.5.Non-market services 7.8 0.2 -0.7 8.4 26.2 2.2.Reallocation of labour effect -0.1


in total industries

Average share in


Lithuania Table 1 Gross Value Added, Labour Input and Labour Productivity, 1995-2004

Gross Value Added


Total hours

worked

GVA per hour

worked1995-2004TOTAL INDUSTRIES 5.9 -0.3 -0.2 6.1 100.0 6.1.Electrical machinery, post and communication 9.4 -0.1 -0.2 9.6 2.8 0.3.Manufacturing, excluding electrical 7.7 -1.6 -1.5 9.3 17.9 1.8.Other goods producing industries 3.7 -1.4 -1.2 4.8 27.5 1.4.Distribution services 6.4 0.5 0.5 5.9 20.6 1.2.Finance and business services 10.8 -0.1 0.6 10.3 3.6 0.4.Personal and social services 4.6 4.1 4.2 0.4 5.9 0.0.Non-market services 4.2 0.1 0.2 4.0 21.8 0.8.Reallocation of labour effect 0.2


in total industries


hours worked (%)


– 65 –

Malta Table 1 Gross Value Added, Labour Input and Labour Productivity, 1995-2004

Gross Value Added


Total hours

worked

GVA per hour

worked1995-2004TOTAL INDUSTRIES 1.8 1.3 0.3 1.4 100.0 1.4.Electrical machinery, post and communication 1.9 1.6 0.9 0.9 5.6 0.0.Manufacturing, excluding electrical -1.0 -3.1 -3.9 2.9 17.4 0.6.Other goods producing industries 0.4 0.1 -0.6 1.0 13.0 0.1.Distribution services 0.2 1.9 1.1 -0.9 21.5 -0.2.Finance and business services 2.8 4.6 4.1 -1.3 8.7 -0.1.Personal and social services 3.2 2.7 2.1 1.1 12.3 0.1.Non-market services 4.0 2.5 0.9 3.1 21.6 0.7.Reallocation of labour effect 0.2


in total industries


hours worked (%)

Portugal Table 1 Gross Value Added, Labour Input and Labour Productivity, 1970-1995 and 1995-2004

Gross Value Added


Total hours

worked

GVA per hour

worked1970-1995TOTAL INDUSTRIES 3.5 0.1 -0.3 3.8 100.0 3.8.Electrical machinery, post and communication 6.0 0.0 -0.4 6.4 1.9 0.1.Manufacturing, excluding electrical 2.5 0.0 -0.3 2.8 21.8 0.6.Other goods producing industries 2.4 -1.4 -1.8 4.1 33.5 1.5.Distribution services 2.6 0.2 -0.2 2.7 19.6 0.5.Finance and business services 5.9 3.9 3.6 2.3 3.0 0.0.Personal and social services 3.2 1.0 0.5 2.8 9.2 0.2.Non-market services 4.2 1.8 1.5 2.7 11.0 0.3.Reallocation of labour effect 0.4

1995-2004TOTAL INDUSTRIES 2.4 1.3 0.8 1.6 100.0 1.6.Electrical machinery, post and communication 6.4 0.2 -0.7 7.1 1.9 0.1.Manufacturing, excluding electrical 1.6 -0.7 -1.2 2.7 19.4 0.6.Other goods producing industries 0.8 0.8 0.3 0.4 25.7 0.1.Distribution services 2.2 1.4 1.0 1.2 20.2 0.2.Finance and business services 5.4 3.5 3.0 2.3 6.3 0.1.Personal and social services 1.9 2.2 1.9 0.0 11.1 0.0.Non-market services 1.8 2.5 2.0 -0.2 15.4 0.0.Reallocation of labour effect 0.4


in total industries

Average share in



– 66 –


-1.00.01.02.03.04.05.06.07.08.0


1970-1995 1995-2004

Contact persons for other countries:

For Baltic countries: Jukka Jalava, Pellervo Research Institute (PTT), [email protected]

For other countries: Gerard Ypma, Groningen Growth and Development Centre, University of Groningen (RUG), [email protected]

OTHER EU-AGGREGATES: THE EU KLEMS PRODUCTIVITY REPORT

– 67 –

OTHER EU-AGGREGATES

Eurozone


Gross Value Added


Total hours

worked

GVA per hour


1995-2004TOTAL INDUSTRIES 2.0 1.2 0.8 1.3 100.0 1.3.Electrical machinery, post and communication 5.6 -0.5 -0.8 6.5 3.3 0.2.Manufacturing, excluding electrical 1.3 -0.4 -0.7 2.0 16.8 0.4.Other goods producing industries 1.3 -0.3 -0.6 1.9 15.4 0.3.Distribution services 2.3 1.3 0.8 1.4 20.3 0.3.Finance and business services 3.0 3.8 3.4 -0.5 12.7 0.0.Personal and social services 1.8 2.6 2.0 -0.2 11.0 0.0.Non-market services 1.7 1.3 0.9 0.9 20.6 0.2.Reallocation of labour effect 0.0


in total industries

Average share in



-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0


1970-1995 1995-2004

OTHER EU-AGGREGATES: THE EU KLEMS PRODUCTIVITY REPORT

– 68 –

EU15ex (excluding Greece, Ireland, Luxembourg, Portugal and Sweden)


Gross Value Added


Total hours

worked

GVA per hour


1995-2004TOTAL INDUSTRIES 2.1 1.2 0.8 1.3 100.0 1.3.Electrical machinery, post and communication 6.0 -0.6 -1.0 7.0 3.5 0.3.Manufacturing, excluding electrical 1.0 -0.7 -0.9 1.9 16.3 0.3.Other goods producing industries 1.2 -0.3 -0.5 1.8 13.7 0.3.Distribution services 2.3 1.2 0.8 1.6 20.4 0.3.Finance and business services 3.5 3.6 3.3 0.2 14.1 0.0.Personal and social services 1.7 2.6 2.1 -0.3 10.9 0.0.Non-market services 1.6 1.3 1.0 0.7 21.2 0.1.Reallocation of labour effect 0.0


in total industries

Average share in



-1.00.01.02.03.04.05.06.07.08.0


1970-1995 1995-2004

THE POLICY SIGNIFICANCE OF EU KLEMS

– 69 –

THE POLICY SIGNIFICANCE OF EU KLEMS The EU is, and wants to remain, an important part of an increasingly integrated world economy. The dramatic intensification of the globalisation process over the last 15-20 years is transforming the economic structures of the developed and developing worlds, with India emerging as a global power in services, China consolidating its position in manufacturing and with the developed world as a whole searching for an appropriate response. The combination of these global trends allied to important domestic EU developments, such as the internal market, single currency and enlargement processes, have the potential to generate the largest structural upheaval in EU economies since the industrial revolution. As in the past, these internal and external processes are being underpinned by both technological change (most notably the ICT revolution) and by a shift in policies in many countries around the world towards a more open, market based, system of economic governance. These policies reflect the realities of a new world order where knowledge creation and absorption and the flexibility of the regulatory and institutional frameworks will increasingly be the key determinants of the economic fortunes of economies. With the pace of change accelerating and with the degree of complexity in decision making rising in tandem, it is clear that policy makers need more extensive sources of information in order to respond in an effective manner. This is particularly true in the case of industry level statistics. The unprecedented deepening in global trade and capital market integration since the early 1990's, allied to the cost-induced and ICT-enabled acceleration in the worldwide relocation of production processes over this period, has dramatically changed the economics of specific industries both in terms of scale economies, technological spillovers (i.e. diffusion of best technologies / practices); degree of import competition; and the productivity effects from the reallocation of resources amongst firms / industries. All of these globalisation related transmission mechanisms are having direct knock-on effects in terms of the specialisation patterns of individual countries, with the result that the post-1995 period has been marked by significant divergences in the productivity and GDP per capita trends of specific countries and regions around the world. It is against this backdrop that the EU KLEMS project has emerged as an attempt by the Commission services to understand the global and EU specific phenomena driving EU growth and productivity trends in the post-1995 period. In our view, it is not possible to provide a meaningful interpretation of economic developments over this period without examining industry level trends. The key objective of the EU KLEMS project was therefore to build a system of analysis at the industry level for the EU's Member States (as well as for the US, Japan and a number of other countries) which encompasses internationally harmonised, national accounts based, industry level statistics and indicators, as well as an analytical framework for interpreting this information based on input-output analysis and growth accounting. This project is in effect an attempt to overcome certain deficiencies in official industry level statistics, especially with regard to the provision of data for service industries, and to thereby ensure a more informed EU structural policy debate over the coming years. While the work of Eurostat and the National Statistical Institutes (NSIs) offers hope for the future provision of such data, the present situation is particularly problematic, with long runs of official industry level data only available for a relatively small number of countries, industries and variables and with these short sample lengths precluding any serious degree of analysis. Given the unsatisfactory nature of the present situation, it is widely recognised that if the EU KLEMS project can succeed in producing high quality industry level statistics and if its methodology is eventually absorbed into official statistics, it will lead to a dramatic improvement in the evaluation of existing structural policies to promote growth and competitiveness in the enlarged European Union. As it presently stands, EU KLEMS already constitutes a unique resource for policy makers and researchers to exploit. The databank is extremely rich in terms of its coverage of over 60 industries, with 25-30 countries, up to 35 years of data and between 60-70 variables / indicators included. In practical terms, these datasets will allow for a more refined growth accounting analysis at the industry level (between 30 and 72 industries in total, depending on the country, the variables included and the sub-period). These industries cover the whole economy, including a detailed


– 70 –

breakdown of service industries. Labour input is disaggregated by age, gender as well as by distinct skill categories (i.e. high, medium and low skilled workers). A breakdown of capital distinguishing its ICT and non-ICT components is now feasible and the databank will also allow for an analysis of gross output as well as value added, with intermediate inputs (energy, materials and services) being considered as additional factors of production. Moreover, there will be complementary information on technology indicators, productivity levels and a further breakdown for some of the factors of production into their domestic and foreign components in the December 2007 release. In addition to the databank itself, the project is also addressing a wide range of methodological issues which top the agenda of statistical agencies and institutions involved in empirical economic research. Substantial methodological research has been carried out on the measurement of output, inputs, prices, knowledge indicators and productivity levels (most notably in terms of the production of industry specific purchasing power parities) and especially in terms of improving the international comparability of these indicators. Once the datasets are publicly released, the project will also deliver a large body of peer-reviewed analytical research over the remaining months of the contract. This policy oriented research work will focus on four broad thematic areas, each of which will have multiple individual research projects:

• Firstly, an analysis of productivity, prices, industry structures, technology and innovation;

• Secondly, research on labour markets and skills;

• Thirdly, research on technological progress and innovation; and

• Finally, comparative analyses based on linking the industry level productivity results with firm level databases.

The overall objective of the analytical research work to be carried out by the consortium over the coming months will be to use the assembled EU KLEMS datasets to inform policy makers on the EU's structural performance at the aggregate EU level, within the EU and also compared with the US, Canada and Japan (and hopefully later on with China and India). In particular, it will help to unravel the extent to which total economy productivity growth differentials can be traced to industry specific developments and how much of these differentials are related to ICT investment; to the accompanying changes in the skill composition of employment / organisational changes; to R&D developments and finally, the extent to which measurement problems (most notably in terms of service industries) play a role. Given the progress which has undoubtedly been made in terms of the databank itself, the provision of an analytical framework for interpreting the datasets as well as the groundbreaking methodological and policy oriented research work which has been initiated, we are confident that EU KLEMS has the potential to become a key tool in monitoring the overall success of the revised Lisbon strategy. In particular, whilst we accept that part of the databank is still in the "research" phase, sufficient progress has been made by the consortium to ensure that a sizeable proportion of the datasets could potentially be used for serious policy analysis. The exact number of series per Member State is still open to debate and this will ultimately depend on the success of the consortium over the final months of the contract in convincing the NSI's that their underlying data sources and methodologies are sufficiently robust to ensure public confidence as to their reliability. If this occurs, the statistical module of the databank could over time be developed into an officially accepted, comprehensive, national accounts based, industry level statistical system for the EU which could then be used as a natural complement to the existing Structural Indicators programme. This is an important objective since with a functioning EMU now in place and with the growing acceptance that existing Euro area growth rate differentials are linked to differences in the industry level structures of Euro area countries, we are convinced of the need to launch a debate on pushing the importance of industry level statistics higher up the EU’s list of statistical priorities. This debate has already in fact started with the proposed extension of Eurostat’s ESA95 transmission programme towards the provision of statistics which have a more medium to long term structural policy focus.


– 71 –

In conclusion, we regard EU KLEMS as a commendable achievement which should now be built upon to ensure that EU policy makers have access to industry level statistics with the scope and quality of those presently available to US policy makers. Productivity growth is the lifeblood of our economies and is the ultimate driver of sustained increases in living standards. EU KLEMS has the potential to increasingly demonstrate that industry level statistics, allied with an economically intuitive analytical framework, can provide important insights into many productivity related domains which have a direct bearing on medium to long run GDP per capita trends in the EU. Thanks to the work of the EU KLEMS consortium, EU policy makers are already more informed regarding the global and EU-specific phenomena which are at present radically reshaping our economic environment and which will undoubtedly continue to do so over the coming years and decades.

D. Koszerek, K. Havik, K. Mc Morrow, W. Röger and F. Schönborn

The views expressed represent exclusively the positions of the authors and do not necessarily correspond to those of the European Commission Contact person: Kieran McMorrow, European Commission services, DG ECFIN, [email protected]

EU KLEMS GROWTH AND PRODUCTIVITY ACCOUNTS: A QUICK OVERVIEW

– 72 –


The EU KLEMS database is part of a research project, financed by the European Commission, to analyse productivity in the European Union at the industry level. This work is meant to support empirical and theoretical research in the area of economic growth, studying the relationship between skill formation, technological progress and innovation on the one hand, and productivity, on the other. In addition the database is meant to support the conduct of policies aimed at supporting a revival of productivity and competitiveness in the European Union, requiring comprehensive measurement tools to monitor and evaluate progress. The construction of the database should also support the systematic production of high quality statistics on growth and productivity using the methodologies of national accounts and input-output analysis. The EU KLEMS growth accounts include measures of economic growth, productivity, employment creation, capital formation and technological change at the industry level for European Union member states from 1970 onwards. The input measures include various categories of capital (K), labour (L), energy (E), material (M) and service inputs (S). A major advantage of growth accounts is that it is embedded in a clear analytical framework rooted in production functions and the theory of economic growth. It provides a conceptual framework within which the interaction between variables can be analysed, which is of fundamental importance for policy evaluation. The measures will be developed for individual European Union member states, and are linked with “sister”-KLEMS databases in the U.S. and Japan. In a later stage, more countries will be added. Distinguishing features of the EU KLEMS database

A key objective of the EU KLEMS database is to move beneath the aggregate economy level and examine the productivity performance of individual industries and their contribution to aggregate growth. Previous studies have shown that there is enormous heterogeneity in output and productivity growth across industries, so analysts should focus on the industry-level detail to understand the origins of the European growth process. The database has been constructed on the basis of data delivered by the consortium partners with cooperation of national statistical offices, and processed according to agreed procedures which have been discussed within the consortium over the past 18 months. These procedures were developed to ensure harmonisation of the basic data, and to generate growth accounts in a consistent and uniform way. Importantly, this database is deeply rooted in statistics from the National Accounts, following the ESA95 where appropriate.

Harmonisation of the basic data has focused on a number of areas:

• Industrial classifications: although harmonisation was relatively easy to realise for the recent period for which NACE1 has been in use (with the exception of the US and Japan), older statistics were often in NACE70 or country specific classifications. Additional data had to be found to provide links across diverse classification systems.

• Aggregation levels: the level of industry detail in the national accounts statistics varied widely across countries, variables and periods. The EU KLEMS consortium has generated a system which allows the comparisons of statistics at various levels of aggregation by using a common industry hierarchy for all countries.

• Reference year for volume measures: countries differ in the reporting of volume measures, e.g. previous year prices vis-à-vis different base years. All series have been put on a 1995 reference year.

• Price concepts: the price concept for gross output (basic prices) and intermediate inputs (purchasers’ prices) have been harmonised across countries.

• Solving breaks: various series had to be linked in order to bridge different vintages of the national accounts. This has been done according to standardised methodologies.

• Labour input: various concepts of labour input (employees, self-employed, hours worked) and harmonised measures of persons engaged and hours worked have been developed.


– 73 –

• Labour services input: labour service input has been measured in a standardised way by distinguishing a variety of labour types in terms of gender, age and educational attainment. For these series additional material has been collected, as they are not part of the system of national accounts.

• Asset classification: although the SNA provides a classification of capital assets, it was not always detailed enough to back out information and communication equipment from the investment series. Additional information has been collected to obtain investment series for these assets. In addition, the level of asset detail has been put on a comparable basis.

• Capital services input: capital service input has been measured in a standard way, using harmonised depreciation rates and common rules to deal with a variety of practical problems, such as weighting and rental rates. Importantly, capital input is measured as capital services, rather than stocks.

• Multifactor productivity measures: MFP has been generated on both a gross output and value added basis according to a standard methodology developed by Jorgenson, Gollop and Fraumeni (1987).

• Intermediate input measures: Series on intermediate inputs are broken down into energy, materials and services using a standardised classification.

Coverage of countries and variables Table 1 provides an overview of all the series included in the EU KLEMS database. The variables covered can be split into three main groups: Basic variables, growth accounting variables and additional variables. The basic series contain all the data needed to construct single productivity measures such as output per hour worked. They include nominal, volume and price series of output and intermediate inputs, and volumes and prices of employment. All these series are part of the present European System of National Accounts (ESA 1995) and can be found in the National Accounts of all individual countries, at least for the most recent period. The main assumptions used to construct these series were those required to fill up gaps in industry detail and to link series over time, in particular in those cases where revisions were not taken back to 1970 by the national statistical institutes (NSIs). The variables in the growth accounting series are of an analytical nature and cannot be derived from published National Accounts data without additional assumptions. These include series of capital services, of labour services, and of total factor productivity which are the heart and main aim of the EU KLEMS project. The construction of these series is based on a theoretical model of production, requiring a number of assumptions standard in the literature. Finally, additional series are given which have been used in generating the growth accounts and are informative by themselves. They include various measures of the relative importance of IT- and non-IT capital, and of the various labour types within the EU KLEMS classification.

Table 2 provides a list of countries covered in this preliminary database. It also indicates the period for which data are available. In general, data for 1970-2004 are available for the old EU-15 countries, and series from 1995 onwards are available for the new EU member states (EU-10). But due to data limitations this differs across countries, industries and variables.

At the lowest level of aggregation, data were collected for 71 industries, the so-called Euk industries. The industries are classified according to the European NACE revision 1 classification. Table 3 provides a listing of the industries, including higher aggregates. The level of detail in the EU KLEMS database varies across countries, industries and variables due to data limitations. In order to ensure a minimal level of industry detail for which comparisons can be made across all countries, so-called minimum lists of industries have been used. All national datasets have been constructed in such a way that these minimums are met. The minimum list is different for particular groups of variables and time-periods. Three groups of variables can be distinguished: variables needed to undertake labour productivity growth and unit labour cost analysis (for the period from 1995 onwards, and the period before 1995), and additional variables needed to undertake growth accounting (gross output, intermediate input, labour composition and capital). The industries included in each of these three groups are indicated in Table 2.3. They include respectively 62, 48 and 31 industries. The industry detail for each country conforms at least to the minimum list of industries, but often more detail is available


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For analytical convenience, the EU KLEMS database also provides files with an alternative aggregation scheme. It includes useful aggregates such as market economy, market services and goods production. This aggregation scheme is given in Table 4.

More information on the methodology used in EU KLEMS can be found in the document EU KLEMS

Growth and Productivity Accounts, Version 1.0, PART I Methodology. Detailed source descriptions are given in PART II Sources

On the EU KLEMS website, the database has been presented in separate Excel files for each country. Two

files are available for all countries. The basic files contain all data and variables according to the EU KLEMS industry list, which corresponds with the NACE rev. 1 classification. The additional files contain the same series, but aggregated according to the alternative aggregation scheme. EU-aggregates are presented in exactly the same way. Next to the Excel files we have also constructed comma separated text files for those who want to read the database in to statistical programs.

Marcel Timmer, Ton van Moergastel, Edwin Stuivenwold and Gerard Ypma Groningen Growth and Development Centre For more information and updates, see: www.euklems.net

Contact persons: Marcel Timmer and Gerard Ypma, Groningen Growth and Development Centre, University of Groningen, [email protected]


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Table 1 Variables in the EU KLEMS databaseBasic variables

ValuesGO Gross output at current basic prices (in millions of local currency)II Intermediate inputs at current purchasers' prices (in millions of local currency)IIE Intermediate energy inputs at current purchasers' prices (in millions of local currency)IIM Intermediate material inputs at current purchasers' prices (in millions of local currency)IIS Intermediate service inputs at current purchasers' prices (in millions of local currency)VA Gross value added at current basic prices (in millions of local currency)COMP Compensation of employees (in millions of local currency)GOSTXSP Gross operating surplus and Taxes minus subsidies on production (in millions of local currency)GOS Gross operating surplus (in millions of local currency)TXSP Taxes minus subsidies on production (in millions of local currency)EMP Number of persons engaged (thousands)EMPE Number of employees (thousands)H_EMP Total hours worked by persons engaged (millions)H_EMPE Total hours worked by employees (millions)

PricesGO_P Gross output, price indices, 1995 = 100II_P Intermediate inputs, price indices, 1995 = 100VA_P Gross value added, price indices, 1995 = 100

VolumesGO_QI Gross output, volume indices, 1995 = 100II_QI Intermediate inputs, volume indices, 1995 = 100IIE_QI Intermediate energy inputs, volume indices, 1995 = 100IIM_QI Intermediate material inputs, volume indices, 1995 = 100IIS_QI Intermediate service inputs, volume indices, 1995 = 100VA_QI Gross value added, volume indices, 1995 = 100LP_I Gross value added per hour worked, volume indices, 1995=100

Growth accountingLAB Labour compensation (in millions of international Euros)CAP Capital compensation (in millions of international Euros)LAB_QI Labour services, volume indices, 1995 = 100CAP_QI Capital services, volume indices, 1995 = 100

VA_Q Growth rate of value added volume (% per year)VAConL Contribution of labour services to value added growth (percentage points)VAConH Contribution of hours worked to value added growth (percentage points)VAConLC Contribution of labour composition change to value added growth (percentage points)VAConKIT Contribution of ICT capital services to output growth (percentage points)VAConKNIT Contribution of non-ICT capital services to output growth (percentage points)VAConTFP Contribution of TFP to value added growth (percentage points)TFPva_I TFP (value added based) growth, 1995=100

GO_Q Growth rate of gross output volume (% per year)GOConII Contribution of intermediate inputs to output growth (percentage points)GOConIIM Contribution of intermediate energy inputs to output growth (percentage points)GOConIIE Contribution of intermediate material inputs to output growth (percentage points)GOConIIS Contribution of intermediate services inputs to output growth (percentage points)GOConL Contribution of labour services to output growth (percentage points)GOConK Contribution of capital services to output growth (percentage points)GOConTFP Contribution of TFP to output growth (percentage points)TFPgo_I TFP (gross output based) growth, 1995=100

Additional variablesCAPIT ICT capital compensation (share in total capital compensation)CAPNIT Non-ICT capital compensation (share in total capital compensation)CAPIT_QI ICT capital services, volume indices, 1995 = 100CAPNIT_QI Non-ICT capital services, volume indices, 1995 = 100CAPIT_QPH ICT capital services per hour worked, 1995 referenceCAPNIT_QPH Non-ICT capital services per hour worked, 1995 referenceLABHS High-skilled labour compensation (share in total labour compensation)LABMS Medium-skilled labour compensation (share in total labour compensation)LABLS Low-skilled labour compensation (share in total labour compensation)LAB_QPH Labour services per hour worked, 1995 referenceH_HS Hours worked by high-skilled persons engaged (share in total hours)H_MS Hours worked by medium-skilled persons engaged (share in total hours)H_LS Hours worked by low-skilled persons engaged (share in total hours)H_M Hours worked by male persons engaged (share in total hours)H_F Hours worked by female persons engaged (share in total hours)H_29 Hours worked by persons engaged aged 15-29 (share in total hours)H_49 Hours worked by persons engaged aged 30-49 (share in total hours)H_50+ Hours worked by persons engaged aged 50 and over (share in total hours)


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Country code Countries PeriodAUT Austria 1970-2004BEL Belgium 1970-2004CYP Cyprus 1995-2004CZE Czech Republic 1995-2004DEW West Germany 1970-1991DNK Denmark 1970-2004ESP Spain 1970-2004EST Estonia 1995-2004FIN Finland 1970-2004FRA France 1970-2004GER Germany 1970-2004GRC Greece 1970-2004HUN Hungary 1995-2004IRL Ireland 1970-2004ITA Italy 1970-2004JPN Japan 1970-2004LVA Latvia 1995-2004LTU Lithuania 1995-2004LUX Luxembourg 1970-2004MLT Malta 1995-2004NLD Netherlands 1970-2004PRT Portugal 1970-2004POL Poland 1995-2004SVK Slovakia 1995-2004SVN Slovenia 1995-2004SWE Sweden 1970-2004UK United Kingdom 1970-2004

US2 United States (NAICS based) 1977-2004USA United States (SIC based) 1970-2004

Table 2 Countries covered


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Table 3 Industries in EU KLEMS database and minimum requirements

GA LP70-95 LP 95-04TOT TOTAL ECONOMY X X XAtB AGRICULTURE, HUNTING, FORESTRY AND FISHING X X X

A …AGRICULTURE, HUNTING AND FORESTRY X X1 ……Agriculture X X2 ……Forestry X XB …FISHING X XC MINING AND QUARRYING X X X

10t12 …MINING AND QUARRYING OF ENERGY PRODUCING MATERIALS X X10 ……Mining of coal and lignite; extraction of peat 11 ……Extraction of crude petroleum and natural gas and services12 ……Mining of uranium and thorium ores

13t14 …MINING AND QUARRYING EXCEPT ENERGY PRODUCING MATERIALS X X13 ……Mining of metal ores 14 ……Other mining and quarrying D TOTAL MANUFACTURING X X X

15t16 …FOOD PRODUCTS, BEVERAGES AND TOBACCO X X X15 ……Food products and beverages X16 ……Tobacco products X

17t19 …TEXTILES, TEXTILE PRODUCTS, LEATHER AND FOOTWEAR X X X17t18 ……Textiles and textile products X X

17 ………Textiles X18 ………Wearing Apparel, Dressing And Dying Of Fur X19 ……Leather, leather products and footwear X X20 …WOOD AND PRODUCTS OF WOOD AND CORK X X X

21t22 …PULP, PAPER, PAPER PRODUCTS, PRINTING AND PUBLISHING X X X21 ……Pulp, paper and paper products X X22 ……Printing, publishing and reproduction X X

221 ………Publishing X22x ………Printing and reproduction X

23t25 …CHEMICAL, RUBBER, PLASTICS AND FUEL PRODUCTS X X X23 ……Coke, refined petroleum products and nuclear fuel X X X24 ……Chemicals and chemical products X X X

244 ………Pharmaceuticals X24x ………Chemicals excluding pharmaceuticals X25 ……Rubber and plastics products X X X26 …OTHER NON-METALLIC MINERAL PRODUCTS X X X

27t28 …BASIC METALS AND FABRICATED METAL PRODUCTS X X X27 ……Basic metals X X28 ……Fabricated metal products X X29 …MACHINERY, NEC X X X

30t33 …ELECTRICAL AND OPTICAL EQUIPMENT X X X30 ……Office, accounting and computing machinery X X

31t32 ……Electrical engineering X X31 ………Electrical machinery and apparatus, nec X X

313 …………Insulated wire X31x …………Other electrical machinery and apparatus nec X32 ………Radio, television and communication equipment X X

321 …………Electronic valves and tubes X322 …………Telecommunication equipment X323 …………Radio and television receivers X

33 ……Medical, precision and optical instruments X X331t3 ………Scientific instruments X334t5 ………Other instruments X34t35 …TRANSPORT EQUIPMENT X X X

34 ……Motor vehicles, trailers and semi-trailers X X35 ……Other transport equipment X X

351 ………Building and repairing of ships and boats353 ………Aircraft and spacecraft35x ………Railroad equipment and transport equipment nec

36t37 …MANUFACTURING NEC; RECYCLING X X X36 ……Manufacturing nec37 ……Recycling


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Table 3 Industries (continued)E ELECTRICITY, GAS AND WATER SUPPLY X X X

40 …ELECTRICITY AND GAS 40x ……Electricity supply402 ……Gas supply

41 …WATER SUPPLYF CONSTRUCTION X X XG WHOLESALE AND RETAIL TRADE X X X

50 ……Sale, maintenance and repair of motor vehicles and motorcycles; retail sale of fuel X X X51 ……Wholesale trade and commission trade, except of motor vehicles and motorcycles X X X52 ……Retail trade, except of motor vehicles and motorcycles; repair of household goods X X XH HOTELS AND RESTAURANTS X X XI TRANSPORT AND STORAGE AND COMMUNICATION X X X

60t63 …TRANSPORT AND STORAGE X X X60 ……Inland transport X X61 ……Water transport X X62 ……Air transport X X63 ……Supporting and auxiliary transport activities; activities of travel agencies X X64 …POST AND TELECOMMUNICATIONS X X X

JtK FINANCE, INSURANCE, REAL ESTATE AND BUSINESS SERVICES X X XJ …FINANCIAL INTERMEDIATION X X X

65 ……Financial intermediation, except insurance and pension funding X66 ……Insurance and pension funding, except compulsory social security X67 ……Activities related to financial intermediation XK …REAL ESTATE, RENTING AND BUSINESS ACTIVITIES X X X

70 ……Real estate activities X X X71t74 ……Renting of m&eq and other business activities X X X

71 ………Renting of machinery and equipment X X72 ………Computer and related activities X X73 ………Research and development X X74 ………Other business activities X X

741t4 …………Legal, technical and advertising X745t8 …………Other business activities, nec X

LtQ COMMUNITY SOCIAL AND PERSONAL SERVICES X X XL …PUBLIC ADMIN AND DEFENCE; COMPULSORY SOCIAL SECURITY X X XM …EDUCATION X X XN …HEALTH AND SOCIAL WORK X X XO …OTHER COMMUNITY, SOCIAL AND PERSONAL SERVICES X X X

90 ……Sewage and refuse disposal, sanitation and similar activities X91 ……Activities of membership organizations nec X92 ……Recreational, cultural and sporting activities X

921t2 ………Media activities923t7 ………Other recreational activites

93 ……Other service activities XP …PRIVATE HOUSEHOLDS WITH EMPLOYED PERSONS X X XQ …EXTRA-TERRITORIAL ORGANIZATIONS AND BODIES

Notes: GA: Growth accounting (1970-2004)LP70-95: Labour Productivity and Unit Labour Costs (1970-1995)LP95-04: Labour Productivity and Unit Labour Costs (1995-2004)


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Table 4 Alternative aggregation scheme

TOT TOTAL INDUSTRIESMARKT MARKET ECONOMY

ELECOM ELECTRICAL MACHINERY, POST AND COMMUNICATION SERVICES30t33 Electrical and optical equipment

64 Post and telecommunicationsGOODS GOODS PRODUCING, EXCLUDING ELECTRICAL MACHINERYMexElec TOTAL MANUFACTURING, EXCLUDING ELECTRICAL

Mcons Consumer manufacturing15t16 Food products, beverages and tobacco17t19 Textiles, textile products, leather and footwear36t37 Manufacturing nec; recyclingMinter Intermediate manufacturing

20 Wood and products of wood and cork21t22 Pulp, paper, paper products, printing and publishing

23 Coke, refined petroleum products and nuclear fuel24 Chemicals and chemical products25 Rubber and plastics products26 Other non-metallic mineral products

27t28 Basic metals and fabricated metal productsMinves Investment goods, excluding hightech

29 Machinery, nec34t35 Transport equipment

OtherG OTHER PRODUCTIONC Mining and quarryingE Electricity, gas and water supplyF Construction

AtB Agriculture, hunting, forestry and fishingMSERV MARKET SERVICES, EXCLUDING POST AND TELECOMMUNICATIONSDISTR DISTRIBUTION50t52 Trade

50 Sale, maintenance and repair of motor vehicles and motorcycles; retail sale of fuel51 Wholesale trade and commission trade, except of motor vehicles and motorcycles52 Retail trade, except of motor vehicles and motorcycles; repair of household goods

60t63 Transport and storageFINBU FINANCE AND BUSINESS, EXCEPT REAL ESTATE

J Financial intermediation71t74 Renting of m&eq and other business activitiesPERS PERSONAL SERVICES

H Hotels and restaurantsO Other community, social and personal servicesP Private households with employed persons

NONMAR NON-MARKET SERVICESLtN Public admin, education and health

L Public admin and defence; compulsory social securityM EducationN Health and social work70 Real estate activities

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