Table 1. Labour productivity indicators * EU EU ,1 106,0 105,

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1 LABOUR PRODUCTIVITY DISPARITIES IN THE EUROPEAN UNION Goschin Zizi Academy of Economic Studies, Calea Dorobantilor, Bucharest, Phone: , Danciu Aniela Academy of Economic Studies, Calea Dorobantilor, Bucharest, Phone: , Abstract Productivity is a key factor for the development of any economy and labour productivity is usually measured to identify its contribution to the growth of income per capita; it is also useful in cross-country comparisons for explaining persistent disparities of economic growth. There are various statistical indicators for measuring labour productivity; Eurostat is calculating three different indicators: GDP per person employed, GDP per hour worked and real unit labour cost growth. The paper investigates the patterns of labour productivity disparities in the European Union, both at national and regional level, from the standpoint of these three statistical indicators. Key words: labour productivity indicators, disparities, European Union Introduction Productivity is a key factor for any economy, as higher productivity is leading to increased real income, improved living standards and is generally believed to generate significant economic growth. Labour productivity is usually measured to identify its contribution to the growth of income per capita and is useful in cross-country comparisons for explaining persistent disparities of economic growth. Labour productivity relates a measure of output to labour, as a single measure of input. Both the input and the output can be expressed in different ways, thus generating various statistical indicators of labour productivity. Eurostat is calculating and three different indicators of labour productivity: GDP per person employed, GDP per hour worked and real unit labour cost growth. When used in comparisons across countries the measurement of labour productivity requires the expression of output and input into values at common prices and common currency. The conversion from national prices to euro in Purchasing Power Standards (PPS) values eliminates price level differences between countries. Labour productivity indicators 1. GDP per person employed is a statistical indicator which expresses the overall labour productivity of a country and enables cross-country comparisons. GDP at market prices, including taxes and subsidies on production and imports, is the final result of the production activity of the resident economic units. For international comparisons GDP is evaluated in euro at Purchasing Power Standards (PPS) by dividing GDP expressed in national prices to the Purchasing Power Parities (PPP). These conversion factors (PPP) are evaluated as a weighted average of relative price ratios in respect to a representative basket of goods and services. The average PPP of one euro is fixed equal to one PPS. Table 1 shows labour productivity levels in UE member countries, United States and Japan, with respect to EU average (EU-25=100). Table 1. Labour productivity indicators Country GDP in PPS per person employed (EU-25=100) GDP in PPS per hour worked (EU-15=100) Unit labour cost growth * EU EU ,1 106,0 105, Belgium 124,9 128,0 127,4 124,3 128, Czech Republic 58,3 65,9 69,7 45,0 50, Denmark 103,7 105,8 107,8 103,5 102, Germany 103,1 101,5 100,5 106,3 105,

2 Estonia 39,2 58,6 65,2 40, Greece 86,8 98,5 99,6 61,7 71,0 0.4 Spain 100,2 97,3 95,2 88,9 88, France 122,9 119,1 118,8 115,8 117, Ireland 119,1 127,4 129,3 108,1 118, Italy 122,5 108,1 106,5 99,3 92, Cyprus 74,8 75,6 76, Latvia 35,6 46,3 51,5 28,3 34, Lithuania 38,3 53,2 57,5 34,0 41, Luxembourg 160,3 160,9 160,4 49,9 153, Hungary 59,3 69,8 73, Malta 80,5 80,3 69, Netherlands 104,0 107,8 107,6 114,0 116, Austria 109,6 98,7 96,4 Poland 55,4 63,0 54,1 44,7 47, Portugal 71,9 65,5 64,5 65,1 59, Slovenia 70,0 76,9 80,1 60,1 66, Slovakia 51,7 62,1 66,7 46,0 52, Finland 110,0 108,4 109,6 96,9 96, Sweden 106,6 104,4 105,3 100,4 102, United Kingdom 102,5 106,6 107,9 93,0 97, Bulgaria 29,4 32,9 34, Romania 28,7 39,2 42, United States 133,3 135,3 136,4 110,6 115, Japan 90,6 92,5 93,8 76,9 79,2-0.3 Note:( * ) forecast, ( )not available Bulgaria and Romania have the lowest labour productivity levels: 33,8%, respectively 39,2% of the EU-25 average in Although the indicator is situated on an upward trend in period and the forecast for 2007 is optimistic. Among EU members, labour productivity record level belongs to Luxembourg (160,9% in 2005), followed by Belgium (128%) and Ireland (127,4%). 2. GDP in PPS per hour worked is measured as a ratio between GDP in euro (in Purchasing Power Standards) and the aggregate number of hours actually worked by the persons employed during the accounting period. Total hours worked is the preferred expression of labour input because it answers the problems raised by the differences between full and part-time employment. Table 1 shows the differences between EU members, as well as the position of United States and Japan regarding this statistical indicator. It seems that the hierarchy of the countries relative to EU average isn t significantly changed as compared to the previous indicator. There isn t available any information for Romania because the lack of statistical data regarding total hours worked. 3. Unit labour cost growth is obtained as the growth rate of the ratio: compensation per employee divided by GDP per total employment. This indicator expresses the relation between remuneration (compensation per employee shows how much the work is paid) and labour productivity (GDP per worker measure the value produced per employee). As PPPs and related statistical indicators are constructed primarily for territorial 810

3 comparisons, they are not suitable for time comparisons and are not being used to express national growth rates. That is why the figures in national currency for compensation of employees and GDP are converted into euro using annual average exchange rates. Table 1 shows for most of the EU members (Romania included), and also for the EU average, a significant reduction of the real labour cost growth, as the productivity raised faster than remuneration of the employees. It should be taken into account that remuneration refers to employed labour only, although GDP per employment refers to all labour (self-employed included). Regional labour productivity disparities Labour productivity disparities between countries are far lower then the regional ones, as figure 1 indicates. While in the Southern and in Eastern Ireland, in Ile de France, Luxembourg and Brussels, labour productivity surpasses euro/worker, in Letonia, in all Bulgarian and Romanian regions, except for Bucharest, productivity level is less than euro/worker. Even within the same country can be important differences between regions, e.g. an interregional distance of euro in Germany and euro in France (figure 2). Fig. 1. Regional distribution of labour productivity (GDP per worker in PPS) in 2003 Figure 1 illustrates sharply contrasting regional values of labour productivity for EU member countries. Labour productivity in the regions of the new member states is (with few exceptions) below euro per person employed. As usually, Bulgaria and Romania are the laggards, the North-East development region of Romania getting the worst position in EU. Labour productivity has strongly risen in the period in the regions of the new member states, significantly reducing the gap to the old EU members. Statistical data show a correlation of -0,60 between the growth rates and the initial level of labour productivity; this means that the lower was the labour productivity in 1998, the stronger was the productivity growth in the following years. Unfortunately, eastern Romania made an exception from that trend, having a drop in labour productivity in this period. 811

4 Fig. 2. Labour productivity country average and regional minima and maxima in 2003 National average The calculations of labour productivity per person employed do not take into account the differing lengths of working time and the extent of part-time employment. In many cases, full-time jobs have been replaced by several part-time ones, which mean that more people are employed, so labour productivity measured as GDP/persons employed is lower. Because of a higher proportion of part-time work, fewer than 35 hours a week are worked in all regions of the Netherlands and in some regions of Germany, but more than 40 hours a week are worked in all regions of Greece, in eastern Romania, in northern Bulgaria, in all regions of the Czech Republic, in Slovenia etc. The correlation of the working week duration with labour productivity is at -0.58, so in regions with low productivity the number of working hours tends to be bigger. As a result, when labour productivity is calculated on the basis of the number of working hours, the productivity divide between Europe s regions is magnified. The highest labour productivity is in Groningen, at 52.6 euro per hour, while the lowest productivity is to be found in North-East in Romania, at 1.9 euro per hour (only 4% of top-performing Groningen s figure). Concluding remarks Labour productivity is an useful economic indicator connected to an important production factor and easy to use. Difficulties in productivity measurement are derived from its qualitative, hard to evaluate aspects, such as creativity and better management. A wide array of labour productivity measurements have been developed, GDP per hour worked being the best so far. Calculations of labour productivity based on the number of hours worked are more accurate than the ones using the number of the persons employed. International productivity comparisons have many difficult problems to solve: national differences between countries in the measurement of working hours, national prices and currencies, quality of output measure etc. There are big differences in labour productivity between Europe s regions, but there is a strong trend towards the reduction of the discrepancies owing to a faster productivity growth in the regions where it is low. Labour productivity is still very low in Romania compared to EU-15 member countries and represents only 39,2% from EU-25 in It is though encouraging that it had been on an upward trend in period, and the forecast for 2007 is good. Bibliography 1. Constantin D.L., Pârlog C., Lilea E., Caracotă D., Goschin Z., Colibabă D., Vătui M., Cristache S., Resursele umane în România. Mobilitatea teritorială, Editura ASE, Bucureşti,

5 2. Vasile V., Zaman Gh., MigraŃia forńei de muncă şi dezvoltarea durabilă a României, Editura Expert, Bucureşti, International Comparisons of Labour Productivity Levels - Estimates for 2004, OECD, Measuring Productivity. Measurement of Aggregate and Industry-level Productivity Growth, OECD Manual, OECD Compendium of Productivity Indicators, Productivity and Employment Growth, An Empirical Review of Long and Medium Run Evidence, Research Memorandum GD-71, University of Groningen, Productivity Measures: Business Sector and Major Subsectors, in Bureau of Labor Statistics Handbook of Methods, BLS Bulletin 2490, 1997, pp Regions: Statistical Yearbook 2006, Eurostat