the eu productivity gap - world klems · intangibles and growth • empirical evidence shows a...

The EU Productivity GapMatilde Mas

Universitat de València and Ivie

Open Session Round Table:

The Future of Europe from an International Perspective

Madrid May 24th, 2016

This project has received funding from the European Union’s Seventh Framework Programme for

research, technological development and demonstration under grant agreement No. 612774

Labour Productivity growth is key for per capita income growth“Productivity isn’t everything, but in the long run it is almost everything”.- Paul Krugman

y = 1,01x + 0,21R² = 0,90

-1

0

1

2

3

4

5

6

-1 0 1 2 3 4 5 6Per

cap

ita

inco

me

grow

th (

perc

enta

ge),

195

0-2

014

Labour productivity growth (percentage), 1950-2014

Labour productivity and per capita income, 1950-2014Figure 1. Labour productivity and per capita income, 1950-2014

Source: Total Economy Database, May 2015 (TCB)

3

The EU should aim at improving its Labour Productivity

Figure 1. Labour productivity. EU and non-EU countries, average 1995-2015

(Thousands of 2014 US$)

104.7

91.788.4

81.076.2 75.0

68.5

56.4

39.8

26.8

10.3 8.7

0

20

40

60

80

100

120

US

Sw

itzer

land

Aus

tral

ia

Can

ada

EU

Tai

wan

Japa

n

Kor

ea

Rus

sia

Bra

zil

Chi

na

Indi

a

Average = 29.6


4

Figure 2. Labour productivity growth. EU and Non-EU countries, 1995-2015

(annual rates in percentages)


5.80

5.00

3.07 2.872.45

1.59

1.27 1.12 0.96 0.92 0.82 0.67

0

2

4

6

8

Chi

na

Indi

a

Kor

ea

Tai

wan

Rus

sia

US

Aus

tral

ia

EU

Can

ada

Japa

n

Sw

itzer

land

Bra

zil

Average = 1.9%

The rate of growth of labour productivity (LP) in the EU

has been…modest

5




has been…modest


6





has been…modest

7




has been…modest


8




has been…modest


LP growth have been lower in the EU than in other leading countries…

Figure 2: Productivity. Dynamics of other economies’ differences vs the EU28 average.

2006 and 2013. (Thousands of 2010 euros PPS)

a) Total economy

Note: EU28 aggregated labour productivity in 2006 = 56.4; in 2013 = 57.8. EU28 manufacturing labour productivity in 2006 = 52.4; in 2013 = 57.7. EU28 services

labour productivity in 2006 = 52; in 2013 = 52.9. Latest available data for Canada and Japan corresponds to 2012.

Source: PREDICT database elaborated by Ivie and JRC-IPTS

Lower than EU28 average & Converging

II

Higher than EU28 average & Diverging

IV

-80

-60

-40

-20

0

20

40

60

80

100

120

India China Russia Korea Japan Canada Taiwan Australia United States

20132006

Dif

fere

nce

Oth

er e

cono

mie

s -E

U a

vera

ge (t

hou

sand

so

f 201

0 e

uros

PPS

)Higher than EU28 average

& Converging

II

In Manufacturing the gap decreased with respect to 3 countries…Figure 2 (cont.): Productivity. Dynamics of other economies’ differences vs the EU28

average. 2006 and 2013. (Thousands of 2010 euros PPS)

b) Manufacturing





II


IV

-80

-60

-40

-20

0

20

40

60

80

100

120

India Australia China Russia Canada Japan Taiwan Korea United States

20132006

Dif

fere

nce

Oth

er e

cono

mie

s -E

U a

vera

ge (t

hou

sand

so

f 201

0 e

uros

PPS

)

Lower than EU28 average & Diverging

I

Higher than EU28

average & Converging

III

…but in Services, all countries have performed betterFigure 2 (cont.): Productivity. Dynamics of other economies’ differences vs the EU28

average. 2006 and 2013. (Thousands of 2010 euros PPS)

c) Services





II


IV

20132006

Dif

fere

nce

Oth

er e

cono

mie

s -E

U a

vera

ge (t

hou

sand

so

f 201

0 e

uros

PPS

)

-80

-60

-40

-20

0

20

40

60

80

100

120

India China Russia Korea Canada Japan Australia Taiwan United States

Higher than EU28 average & Converging

III

12

The leadership of the US in LP with respect to the EU has

widened during the 2006-2013 period in all industries but two

ICT industries

1 Manufacture of electronic components and

boards [261]

2 Manufacture of computers and peripheral

equipment [262]

3 Manufacture of communication equipment

[263]

4 Manufacture of consumer electronics [264]

5 Telecommunications [61]

6 Computer and related activities [5820, 62,

631, 951]

Non-ICT industries

7 Manufacture of chemicals and chemical

products [20]

8 Manufacture of pharmaceuticals, medicinal

chemical and botanical products [21]

9 Manufacture of machinery and equipment

[27-28]

10 Manufacture of motor vehicles, trailers and

semi-trailers [29]

11 Manufacture of other transport equipment

[30]

12 Transportation and storage [49-53]

13 Information and communication [58-63,

except Computer and related activities]

14 Financial and insurance activities [64-63]

15 Professional, scientific and technical

activities [69-75]

16 Administration and support service

activities [76-82]

17 Education [85]

18 Human health and social work activities [86-

88]

Figure 4. Productivity. Dynamics of US-EU differences by industry. 2006 and 2013

(Thousands of 2010 euros PPS)

0

50

100

150

200

250

20132006

12 2 17 16 9 15 14 10 6 11 4 5 13 1 7 3 8

Dif

fere

nce

by in

dust

ry U

S -E

U a

vera

ge (

thou

sand

s o

f 201

0 e

uros

PPS

)

18

Higher than EU average & Diverging

IV

Higher than EU average & Converging

III

(Thousands of 2010 euros PPS)

Note: ICT sectors marked in bold. The codification of industries can be found in the box to the left (NACE Rev. 2 codes in brackets ). Source: PREDICTdatabase elaborated by Ivie and JRC-IPTS

13

MFP contribution was negative in the 5 big EU countries.

Figure 6. Contributions to GDP growth, 2007-2012

(Percentages)

-3

-2

-1

0

1

2

France Germany Italy Spain UK US

ICT capital Non-ICT capital Hours worked Labour composition TFP GDP

Source: APO, EU KLEMS, Jorgenson and Vu (2016), TCB and own elaboration

14

Warning: There is not an homogenous EU

There are several potential factors

- Lack of flexibility of the EU labour markets

long-term uneployment; temporary employment;…

- Accumulation of capital during the boom years (excess capacity affecting productivity of capital)

- Regulations (some of them under discussion with TTIP)

- Lack of competition (roaming; collusive agreements; …)

- Size and flexibility (in and out) of firms

- Directive on Services in the internal market and its trasposition

-

Endowments of Intangible Assets

o R&D

o Other Intangible Assets: Organizational Capital and Training

What might be the sources of EU disappointing performance?

15

Intangibles and Growth

• Empirical evidence shows a strong correlation between intangibles and LP

growth (Corrado, Haskel, Jona-Lasinio and Iommi (2013)). Fernández de

Guevera and Mas (2016) making use of the Spanish data disaggregated by

industries.

• Corrado, Haskel and Jona-Lasinio (2014) also find:

I. a complementary relation between ICT and intangible capital.

II. significant spillovers of intangible capital.

• These results are not confirmed (at least not yet) for the Spanish

disaggregated data.

16

US outperforms the EU in both, market and non-market GFCF in

intangibles.

Marked heterogeneity of EU15 countries. Sweden and UK in the first

positions. The four peripheral countries at the low end.

Figure 7. Share of GFCF on intangible assets over total GDP. EU15 and US. Average 2006-

2010 (percentages)

Source: Eurostat, INTAN-Invest, SPINTAN and own elaboration.

a) Market sector b) Non-market sector

10.8

8.4 8.37.5 7.4 7.3 7.1 6.9 6.8

6.3 6.3 6.2 6.1 6.05.2

4.5 4.5 4.3

2.1

0

2

4

6

8

10

12

Uni

ted

Sta

tes

Sw

eden

Uni

ted

Kin

gdom

Bel

gium

Den

mar

k

Fra

nce

Fin

land

Slo

veni

a

Net

herla

nds

EU

15

Cze

ch R

epub

lic

Ger

man

y

Aus

tria

Luxe

mbo

urg

Irel

and

Spa

in

Por

tuga

l

Italy

Gre

ece

EU15 average = 6.3%

2.5

1.6

1.3

1.1 1.10.9 0.9 0.9 0.9 0.9 0.8 0.8 0.7 0.7 0.7

0.60.4

0.2 0.2

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Uni

ted

Sta

tes

Sw

eden

Uni

ted

Kin

gdom Ita

ly

Net

herla

nds

Aus

tria

Por

tuga

l

Fin

land

EU

15

Bel

gium

Cze

ch R

epub

lic

Ger

man

y

Irel

and

Fra

nce

Den

mar

k

Slo

veni

a

Spa

in

Gre

ece

Luxe

mbo

urg

EU15 average = 0.9%

17

Figure 8. BERD intensity (BERD/GDP) and GBAORD/GDP. EU and Non-EU countries, average

2006-2013

(Percentages)

The US presents higher BERD (business) and GBAORD

(public) intensity than the EU28


a) BERD/GDP b) GBAORD/GDP

18

The gap with the US is higher in the non-market sector

Figure 8. Share of GFCF on R&D over total GDP. EU15 and US. Average 2006-2010

(percentages)



2.21 2.15

1.97

1.63 1.591.45

1.13 1.12 1.09 1.06 1.00

0.830.75 0.75

0.63 0.61 0.54 0.51

0.14

0.0

0.5

1.0

1.5

2.0

2.5

Sw

eden

Fin

land

Uni

ted

Sta

tes

Ger

man

y

Aus

tria

Den

mar

k

Fra

nce

Luxe

mbo

urg

Bel

gium

EU

15

Slo

veni

a

Uni

ted

Kin

gdom

Cze

ch R

epub

lic

Net

herla

nds

Irel

and

Spa

in

Italy

Por

tuga

l

Gre

ece

EU15 average = 1.06%

0.94

0.80

0.61

0.520.46

0.40 0.37 0.370.31 0.29

0.260.22

0.19 0.18 0.160.11

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

Uni

ted

Sta

tes

Sw

eden

Aus

tria

Por

tuga

l

Italy

Cze

ch R

epub

lic

Den

mar

k

Fin

land

Ger

man

y

EU

15

Bel

gium

Net

herla

nds

Uni

ted

Kin

gdom

Fra

nce

Spa

in

Slo

veni

a

EU15 average = 0.29%

19

UK leads the ranking of GFCF on organisational capital over

GDP in the market sector and the US in the non-market.

Figure 9. Share of GFCF on organisational capital over total GDP. EU-15 and US.

Average 2006-2010 (percentages)

Source: Eurostat, Intan-INVEST, SPINTAN and own elaboration.


2.9

2.4 2.32.1

1.91.8

1.6 1.61.5 1.5 1.4 1.4 1.3 1.3

1.0 1.0 0.90.7

0.00.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Uni

ted

Kin

gdom

Uni

ted

Sta

tes

Bel

gium

Net

herla

nds

Fra

nce

Sw

eden

Slo

veni

a

EU

15

Aus

tria

Por

tuga

l

Fin

land

Irel

and

Cze

ch R

epub

lic

Ger

man

y

Luxe

mbo

urg

Italy

Den

mar

k

Spa

in

Gre

ece

EU15 average = 1.6%

0.4

0.30.2

0.2

0.1 0.10.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1

0.00.0 0.0

0.0

0.1

0.1

0.2

0.2

0.3

0.3

0.4

0.4

0.5

Uni

ted

Sta

tes

Bel

gium Ita

ly

Net

herla

nds

Fra

nce

Sw

eden

Gre

ece

EU

15

Irel

and

Fin

land

Aus

tria

Uni

ted

Kin

gdom

Den

mar

k

Por

tuga

l

Slo

veni

a

Cze

ch R

epub

lic

Ger

man

y

Spa

in

Luxe

mbo

urg

EU15 average = 0.1%

20

In training GFCF Denmark (followed by the US) takes the

leading role in the market sector and the UK in non-market. US

is above the EU15 average.

Figure 10. Share of GFCF on training over total GDP. EU-15 and US. Average 2006-2010

(percentages)


1.3

1.1

1.00.9 0.9

0.8 0.80.8 0.8 0.7

0.7

0.6 0.5 0.5 0.5 0.5

0.4 0.4

0.00.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

Den

mar

k

Uni

ted

Sta

tes

Uni

ted

Kin

gdom

Fra

nce

Ger

man

y

Net

herla

nds

Luxe

mbo

urg

EU

15

Aus

tria

Irel

and

Sw

eden

Slo

veni

a

Cze

ch R

epub

lic

Italy

Bel

gium

Fin

land

Por

tuga

l

Spa

in

Gre

ece

EU15 average = 0.8%

0.8

0.5

0.4

0.30.3

0.2 0.2 0.20.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.0 0.0 0.0

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

Uni

ted

Kin

gdom

Irel

and

Uni

ted

Sta

tes

Ger

man

y

EU

15

Cze

ch R

epub

lic

Bel

gium

Fin

land

Sw

eden

Net

herla

nds

Slo

veni

a

Italy

Fra

nce

Por

tuga

l

Gre

ece

Luxe

mbo

urg

Aus

tria

Den

mar

k

Spa

in

EU15 average = 0.3%


21

• The EU has a serious productivity problem. The gap with respect to theUS has increased, specially since 2009. The Asian countries are rapidlyclosing the gap with the EU. In fact Taiwan has already surpassed it.

• All nine leading countries considered had a higher LP growth than the EU during the period 2006-2013 at the aggregate level, and even more so in theservices industries.

• In all 18 sectors analized, labour productivity in the US is higher than in the EU. And the gap has increased in almost (16) all of them.

• From the various potential explanations, we have concentrated in intangible assets endowments

• Total Intangible capital, as well as in three of its main components: R&D; organizational capital; and on-the-job training, thesuperiority of the US is overhelming both for the market and non-market economy. Greece, Italy and Spain are lagging behind also in allof them.

Concluding Remarks

The EU Productivity GapMatilde Mas

Universitat de València and Ivie

Open Session Round Table:

The Future of Europe from an International Perspective

Madrid May 24th, 2016

This project has received funding from the European Union’s Seventh Framework Programme for

research, technological development and demonstration under grant agreement No. 612774

the eu productivity gap - world klems · intangibles and growth • empirical evidence shows a...

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