The Productivity Gap between Europe and the US: Trends and Causes Marcel P. Timmer Groningen Growth and Development Centre The EU KLEMS 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".
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The Productivity Gap between Europe and the US: Trends and Causes Marcel P. Timmer Groningen Growth and Development Centre The EU KLEMS project is funded.
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The Productivity Gap between Europe and the US: Trends and Causes
Marcel P. TimmerGroningen Growth and Development Centre
The EU KLEMS 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".
EU-15 Labour productivity convergence to US has ended
Alternative Explanations
• Proximate causes: slower emergence of knowledge economy
• Small ICT-producing sector
• Limited role of ICT-investment
• Lower levels of skilled labour
• Less innovation (product and process)
• Ultimate causes: institutions
• Role of labour markets (Blanchard, 2004)
• Product market regulations (Nicoletti and Scarpetta, 2003)
• End of catch-up (Aghion and Howitt, 2006): More R&D investment, Higher education system reform
• (Statistical myth)
Sector Contribution to Labour Productivity Growth based on
Shift Share Analysis
Source: Stiroh (2002)
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Sector contribution to market economy labour productivity growth, 1980-2005
Source: Updated from van Ark, O’Mahony and Timmer, Journal of Economic Perspectives, Winter 2008
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EU, 80-95 EU, 95-05 US, 80-95 US, 95-05
Market services Goods production ICT production
Market services important source of growth differences across Europe & US
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FIN US GBR AUT FRA NLD BEL GER DNK ITA ESP
Market services Goods production* ICT production
Sector contribution to market economy
labour productivity growth, 1995-2004
Source: Updated from van Ark, O’Mahony and Timmer, Journal of Economic Perspectives, Winter 2008
EU KLEMS Growth Accounts (1)
),,,( TXLKfY jjjjj Gross output PF:
Growth accounting equation:Yjtjt
Ljtjt
Kjtjt
Xjtjt ALvKvXvY lnlnlnlnln
where Y is output, K is an index of capital service flows, L is an index of labour service flows and X is an index of intermediate inputs, Assumptions: competitive factor markets, full input utilization, constant returns to scale and using the translog functional form
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jtKjtK
jtjt
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EU KLEMS Growth Accounts (2)
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tkt SvK ,, lnln
tll
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Capital services based on 8 asset types (ICT and non-ICT)
Labour services based on hours worked by 18 types (education, age, gender)
Measurement of capital services
tkk
tkt SvK ,, lnln Aggregate capital services
and with contribution of capital services based on user cost equation
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Capital stocks for each asset
What is new in EU KLEMS?
• Data available for at least 30 industries and over 20 countries
• Systematic data collection based on national accounts and complementary official sources (LFS and other surveys)
• Long time coverage 1970-2005, with greatest detail for post-1995, harmonized methodologies on industry classification, deflation and aggregations
• Decomposition of inputs:• Capital assets in 7 asset types • Labour input in 18 categories (3 x skill; 3 x age and gender)• Intermediate inputs: energy, materials and services input
• Broad coverage of EU countries:• Growth accounts coverage of 14 EU new member states• Limited coverage of 11 other EU countries• Also comparisons with U.S. Korea, Canada, Australia and Japan