THE EU KLEMS PRODUCTIVITY REPORT

Transcription

1 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". 1

2 THE EU KLEMS PRODUCTIVITY REPORT 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

3 THE EU KLEMS PRODUCTIVITY REPORT INTRODUCTION This report presents the first description of results obtained from the first release of the EU KLEMS Growth and Productivity Accounts in March 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 , and only cover a limited number of the countries from the EU-15, and include another five new member states since 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: 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 3

4 THE EU KLEMS PRODUCTIVITY REPORT Table 1 Industry aggregation used for this report TOT TOTAL INDUSTRIES MARKT MARKET ECONOMY ELECOM ELECTRICAL MACHINERY, POST AND COMMUNICATION 30t33 Electrical and optical equipment 64 Post and telecommunications MexElec MANUFACTURING, EXCLUDING ELECTRICAL 15t16 Food products, beverages and tobacco 17t19 Textiles, textile products, leather and footwear 36t37 Manufacturing nec; recycling 20 Wood and products of wood and cork 21t22 Pulp, paper, paper products, printing and publishing 23 Coke, refined petroleum products and nuclear fuel 24 Chemicals and chemical products 25 Rubber and plastics products 26 Other non-metallic mineral products 27t28 Basic metals and fabricated metal products 29 Machinery, nec 34t35 Transport equipment OtherG OTHER GOODS PRODUCING INDUSTRIES C Mining and quarrying E Electricity, gas and water supply F Construction AtB Agriculture, hunting, forestry and fishing DISTR DISTRIBUTION SERVICES 50 Sale, maintenance and repair of motor vehicles and motorcycles; retail sale of fuel 51 Wholesale trade and commission trade, except of motor vehicles and motorcycles 52 Retail trade, except of motor vehicles and motorcycles; repair of household goods 60t63 Transport and storage FINBU FINANCE AND BUSINESS SERVICES J Financial intermediation 71t74 Renting of m&eq and other business activities PERS PERSONAL AND SOCIAL SERVICES H Hotels and restaurants O Other community, social and personal services P Private households with employed persons NONMAR NON-MARKET SERVICES L Public admin and defence; compulsory social security M Education N Health and social work 70 Real estate activities Reallo REALLOCATION OF LABOUR EFFECT * For a more detailed scheme see table 4 of the final section of the report 4

5 EUROPEAN UNION: SLOWDOWN IN PRODUCTIVITY HIDES CROSS COUNTRY VARIATION 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 to the 2.1 per cent achieved from, labour productivity growth slowed dramatically from 2.4 per cent from to 1.3 per cent from. 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. 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 to 2.4 per cent from. Even compared to Japan, which showed an even bigger slowdown in productivity growth than Europe, the productivity growth rate from 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 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 Economy Database of the Groningen Growth and Development Centre and The Conference Board (htpp:// 2 Greece also showed rapid productivity growth which, as in the new member states, largely reflects catching up growth, 5

6 EUROPEAN UNION: SLOWDOWN IN PRODUCTIVITY HIDES CROSS COUNTRY VARIATION 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 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 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 to 0.3 per cent from. This slowdown in MFP growth is recorded almost everywhere across the Union, with the exception of Finland and the Netherlands where it improved since 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, h.h.van.ark@rug.nl 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. 6

7 EUROPEAN UNION: SLOWDOWN IN PRODUCTIVITY HIDES CROSS COUNTRY VARIATION European Union-15 Table 1 Gross Value Added, Labour Input and Labour Productivity, and Average Contribution Gross GVA per share in total to LP growth Value Added persons engaged hour (%) in total industries TOTAL INDUSTRIES Electrical machinery, post and communication Manufacturing, excluding electrical Other goods producing industries Distribution services Finance and business services Personal and social services Non-market services Reallocation of labour effect TOTAL INDUSTRIES Electrical machinery, post and communication Manufacturing, excluding electrical Other goods producing industries Distribution services Finance and business services Personal and social services Non-market services Reallocation of labour effect Figure 1 Labour productivity growth, vs (in %) TOT ELECOM MexElec OtherG DISTR FINBU PERS NONMAR

8 EUROPEAN UNION: SLOWDOWN IN PRODUCTIVITY HIDES CROSS COUNTRY VARIATION EU-10 (New Member States) Table 1 Gross Value Added, Labour Input and Labour Productivity, Gross Value Added persons engaged GVA per hour Average Contribution share in total to LP growth in total (%) industries TOTAL INDUSTRIES Electrical machinery, post and communication Manufacturing, excluding electrical Other goods producing industries Distribution services Finance and business services Personal and social services Non-market services Reallocation of labour effect EU-25 (excluding Bulgaria and Romania) Table 1 Gross Value Added, Labour Input and Labour Productivity, Gross Value Added persons engaged GVA per hour Average share in total (%) Contribution to LP growth in total industries TOTAL INDUSTRIES Electrical machinery, post and communication Manufacturing, excluding electrical Other goods producing industries Distribution services Finance and business services Personal and social services Non-market services Reallocation of labour effect 8

9 EUROPEAN UNION: SLOWDOWN IN PRODUCTIVITY HIDES CROSS COUNTRY VARIATION EU15ex (excluding Greece, Ireland, Luxembourg, Portugal and Sweden) Table 2 Gross value added growth and contributions, and VA L H LC K KIT KNIT MFP (1)=(2)+(5)+(8) (2)=(3)+(4) (3) (4) (5)=(6)+(7) (6) (7) (8) MARKET ECONOMY Electrical machinery, post and communication Manufacturing, excluding electrical Other goods producing industries Distribution services Finance and business services Personal and social services MARKET ECONOMY Electrical machinery, post and communication Manufacturing, excluding electrical Other goods producing industries Distribution services Finance and business services Personal and social services VA= Gross Value Added growth L= Contribution of Labour input growth H= Contribution of LC= Contribution of Labour composition K= Contribution of Capital input growth KIT= 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, (in %) MARKT ELECOM MexElec OtherG DISTR FINBU PERS Hours Labour composition ICT capital Non-ICT capital Multi factor productivity 9

10 EUROPEAN UNION: SLOWDOWN IN PRODUCTIVITY HIDES CROSS COUNTRY VARIATION Figure 3 Contributions of Industries to Market Economy Labour Productivity Growth (in %) -1.0 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 (in %) EU15 EU10 EU25 USA-SIC JPN MexElec OtherG DISTR FINBU PERS ELECOM Reallo 10

11 AUSTRIA: SEIZING OPPORTUNITIES AT THE GATE OF ECONOMIC TRANSITION AUSTRIA: SEIZING OPPORTUNITIES AT THE GATE OF ECONOMIC TRANSITION 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 towards the services sector. The biggest increase can be found in financial and business services, where the average share in total grew from 6.4% between 1970 and 1995 to 11.7% from 1995 to 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 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. 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. When focusing on the market economy, the average annual growth of value added was 2.6% in the period from 1995 to 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, 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), Michael.Peneder@wifo.ac.at 11

12 AUSTRIA: SEIZING OPPORTUNITIES AT THE GATE OF ECONOMIC TRANSITION Table 1 Gross Value Added, Labour Input and Labour Productivity, and Average Contribution Gross Value Added persons engaged GVA per hour share in total (%) to LP growth in total industries TOTAL INDUSTRIES Electrical machinery, post and communication Manufacturing, excluding electrical Other goods producing industries Distribution services Finance and business services Personal and social services Non-market services Reallocation of labour effect -0.1 TOTAL INDUSTRIES Electrical machinery, post and communication Manufacturing, excluding electrical Other goods producing industries Distribution services Finance and business services Personal and social services Non-market services Reallocation of labour effect -0.2 Table 2 Gross value added growth and contributions, and VA L H LC K KIT KNIT MFP (1)=(2)+(5)+(8) (2)=(3)+(4) (3) (4) (5)=(6)+(7) (6) (7) (8) MARKET ECONOMY Electrical machinery, post and communication Manufacturing, excluding electrical Other goods producing industries Distribution services Finance and business services Personal and social services MARKET ECONOMY Electrical machinery, post and communication Manufacturing, excluding electrical Other goods producing industries Distribution services Finance and business services Personal and social services VA= Gross Value Added growth L= Contribution of Labour input growth H= Contribution of LC= Contribution of Labour composition K= Contribution of Capital input growth KIT= Contribution of ICT capital KNIT= Contribution of Non-ICT capital MFP= Contribution of Multi factor productivity growth 12

13 AUSTRIA: SEIZING OPPORTUNITIES AT THE GATE OF ECONOMIC TRANSITION Figure 1 Labour productivity growth, vs (in %) TOT ELECOM MexElec OtherG DISTR FINBU PERS NONMAR Figure 2 Contributions to Gross Value Added Growth, (in %) MARKT ELECOM MexElec OtherG DISTR FINBU PERS Hours Labour composition ICT capital Non-ICT capital Multi factor productivity 13

14 BELGIUM: FROM LABOUR PRODUCTIVITY GROWTH TO LABOUR INPUT GROWTH BELGIUM: FROM LABOUR PRODUCTIVITY GROWTH TO LABOUR INPUT GROWTH The overall value added growth rate of 2.1% for was slightly below the long term average There was a strong rise in growth of 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 but was accompanied by enhanced labour input growth. On annual average, total have increased by 0.8% over up from -0.6% between 1970 and 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 In most service industries, in particular in finance and business services, total working increased substantially. In contrast to the labour input trends Belgium has recorded decreasing, though still positive, labour productivity growth rates between 1970 and 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, which is almost the same as for the period Over, 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 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, ck@plan.be 14

15 BELGIUM: FROM LABOUR PRODUCTIVITY GROWTH TO LABOUR INPUT GROWTH Table 1 Gross Value Added, Labour Input and Labour Productivity, and Average Gross GVA per share in total Contribution to Value Added persons engaged hour (%) LP growth in total industries TOTAL INDUSTRIES Electrical machinery, post and communication Manufacturing, excluding electrical Other goods producing industries Distribution services Finance and business services Personal and social services Non-market services Reallocation of labour effect -0.3 TOTAL INDUSTRIES Electrical machinery, post and communication Manufacturing, excluding electrical Other goods producing industries Distribution services Finance and business services Personal and social services Non-market services Reallocation of labour effect Table 2 Gross value added growth and contributions, and VA L H LC K KIT KNIT MFP (1)=(2)+(5)+(8) (2)=(3)+(4) (3) (4) (5)=(6)+(7) (6) (7) (8) MARKET ECONOMY Electrical machinery, post and communication Manufacturing, excluding electrical Other goods producing industries Distribution services Finance and business services Personal and social services MARKET ECONOMY Electrical machinery, post and communication Manufacturing, excluding electrical Other goods producing industries Distribution services Finance and business services Personal and social services VA= Gross Value Added growth L= Contribution of Labour input growth H= Contribution of LC= Contribution of Labour composition K= Contribution of Capital input growth KIT= Contribution of ICT capital KNIT= Contribution of Non-ICT capital MFP= Contribution of Multi factor productivity growth 15

16 BELGIUM: FROM LABOUR PRODUCTIVITY GROWTH TO LABOUR INPUT GROWTH 7.0 Figure 1 Labour productivity growth, vs (in %) TOT ELECOM MexElec OtherG DISTR FINBU PERS NONMAR Figure 2 Contributions to Gross Value Added Growth, (in %) MARKT ELECOM GOODS OtherG DISTR FINBU PERS Hours Labour composition ICT capital Non-ICT capital Multi factor productivity 16

17 CZECH REPUBLIC: CAPITAL INPUT DRIVEN JOBLESS GROWTH CZECH REPUBLIC: CAPITAL INPUT DRIVEN JOBLESS GROWTH 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 However, over the longer period from 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 rose by 2.5 percent per year over this period while the number of persons engaged and 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, is positively correlated with the growth performance at the industry level (except Other goods producing industries ). However, as the average share in total 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), stehrer@wiiw.ac.at 17

18 CZECH REPUBLIC: CAPITAL INPUT DRIVEN JOBLESS GROWTH Table 1 Gross Value Added, Labour Input and Labour Productivity, Gross Value Added persons engaged GVA per hour Average share in total (%) Contribution to LP growth in total industries TOTAL INDUSTRIES Electrical machinery, post and communication Manufacturing, excluding electrical Other goods producing industries Distribution services Finance and business services Personal and social services Non-market services Reallocation of labour effect Table 2 Gross value added growth and contributions, VA L H LC K KIT KNIT MFP (1)=(2)+(5)+(8) (2)=(3)+(4) (3) (4) (5)=(6)+(7) (6) (7) (8) MARKET ECONOMY Electrical machinery, post and communication Manufacturing, excluding electrical Other goods producing industries Distribution services Finance and business services Personal and social services VA= Gross Value Added growth L= Contribution of Labour input growth H= Contribution of LC= Contribution of Labour composition K= Contribution of Capital input growth KIT= Contribution of ICT capital KNIT= Contribution of Non-ICT capital MFP= Contribution of Multi factor productivity growth Figure 2 Contributions to Gross Value Added Growth, (in %) MARKT ELECOM GOODS OtherG DISTR FINBU PERS Hours Labour composition ICT capital Non-ICT capital Multi factor productivity 18

19 DENMARK: LABOUR DRIVING GROWTH DENMARK: LABOUR DRIVING GROWTH There has been an acceleration in 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 was decreasing annually at -0.6 per cent from 1970 to This is in contrast to the period from 1995 to 2004, when 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, gross value added (GVA) decelerated between the two periods due to slowing labour productivity growth at 1.1 per cent from down from 3.1 before 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 (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 The contribution was 0.9 per cent annually from 1995 to 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), mj.cebr@cbs.dk 19

20 DENMARK: LABOUR DRIVING GROWTH Table 1 Gross Value Added, Labour Input and Labour Productivity, and Average Gross GVA per share in total Contribution to Value Added persons engaged hour (%) LP growth in total industries TOTAL INDUSTRIES Electrical machinery, post and communication Manufacturing, excluding electrical Other goods producing industries Distribution services Finance and business services Personal and social services Non-market services Reallocation of labour effect -0.3 TOTAL INDUSTRIES Electrical machinery, post and communication Manufacturing, excluding electrical Other goods producing industries Distribution services Finance and business services Personal and social services Non-market services Reallocation of labour effect 0.1 Table 2 Gross value added growth and contributions, and VA L H LC K KIT KNIT MFP (1)=(2)+(5)+(8) (2)=(3)+(4) (3) (4) (5)=(6)+(7) (6) (7) (8) MARKET ECONOMY Electrical machinery, post and communication Manufacturing, excluding electrical Other goods producing industries Distribution services Finance and business services Personal and social services MARKET ECONOMY Electrical machinery, post and communication Manufacturing, excluding electrical Other goods producing industries Distribution services Finance and business services Personal and social services VA= Gross Value Added growth L= Contribution of Labour input growth H= Contribution of LC= Contribution of Labour composition K= Contribution of Capital input growth KIT= Contribution of ICT capital KNIT= Contribution of Non-ICT capital MFP= Contribution of Multi factor productivity growth 20

21 DENMARK: LABOUR DRIVING GROWTH Figure 1 Labour productivity growth, vs (in %) TOT ELECOM MexElec OtherG DISTR FINBU PERS NONMAR Figure 2 Contributions to Gross Value Added Growth, (in %) MARKT ELECOM MexElec OtherG DISTR FINBU PERS Hours Labour composition ICT capital Non-ICT capital Multi factor productivity 21

22 FINLAND: FROM RESOURCE-BASED TO ICT-BASED GROWTH FINLAND: FROM RESOURCE-BASED TO ICT-BASED GROWTH 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 The recovery has, however, been rapid. In, GVA grew at the average annual rate of 3.5 per cent and the number of 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 per cent in to 2.3 in (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), matti.pohjola@hkkk.fi 22

23 FINLAND: FROM RESOURCE-BASED TO ICT-BASED GROWTH Table 1 Gross Value Added, Labour Input and Labour Productivity, and Average Gross Value Added persons engaged GVA per hour share in total (%) Contribution to LP growth in total industries TOTAL INDUSTRIES Electrical machinery, post and communication Manufacturing, excluding electrical Other goods producing industries Distribution services Finance and business services Personal and social services Non-market services Reallocation of labour effect 0.1 TOTAL INDUSTRIES Electrical machinery, post and communication Manufacturing, excluding electrical Other goods producing industries Distribution services Finance and business services Personal and social services Non-market services Reallocation of labour effect 0.5 Table 2 Gross value added growth and contributions, and VA L H LC K KIT KNIT MFP (1)=(2)+(5)+(8) (2)=(3)+(4) (3) (4) (5)=(6)+(7) (6) (7) (8) MARKET ECONOMY Electrical machinery, post and communication Manufacturing, excluding electrical Other goods producing industries Distribution services Finance and business services Personal and social services MARKET ECONOMY Electrical machinery, post and communication Manufacturing, excluding electrical Other goods producing industries Distribution services Finance and business services Personal and social services VA= Gross Value Added growth L= Contribution of Labour input growth H= Contribution of LC= Contribution of Labour composition K= Contribution of Capital input growth KIT= Contribution of ICT capital KNIT= Contribution of Non-ICT capital MFP= Contribution of Multi factor productivity growth 23

24 FINLAND: FROM RESOURCE-BASED TO ICT-BASED GROWTH Figure 1 Labour productivity growth, vs (in %) TOT ELECOM MexElec OtherG DISTR FINBU PERS NONMAR Figure 2 Contributions to Gross Value Added Growth, (in %) MARKT ELECOM MexElec OtherG DISTR FINBU PERS Hours Labour composition ICT capital Non-ICT capital Multi factor productivity 24

25 FRANCE: ICT IS NOT THE WHOLE STORY FRANCE: ICT IS NOT THE WHOLE STORY A shift of labour and 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 over the past 10 years at about 0.7 percent, without showing a decline compared to the 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 , employment and have increased while labour productivity has been on its way down (see table 1). Labour productivity per hour 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 period means are reallocated to the less productive industries, notably in services. Table 2 displays that VA growth has accelerated between the and the periods. The increasing contribution of over the 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 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), laurence.nayman@cepii.fr 25