The EU Productivity Gap - Open Session

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 c

apita

inco

me

grow

th (

perc

enta

ge),

1950

-201

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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)

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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$)

US

Switz

erla

nd

Aust

ralia

Cana

da EU

Taiw

an

Japa

n

Kore

a

Russ

ia

Braz

il

Chin

a

Indi

a

0

20

40

60

80

100

120

104.7

91.7 88.481.0 76.2 75.0

68.556.4

39.8

26.8

10.3 8.7

Average = 29.6


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Figure 2. Labour productivity growth. EU and Non-EU countries, 1995-2015(annual rates in percentages)


Chin

a

Indi

a

Kore

a

Taiw

an

Russ

ia US

Aust

ralia EU

Cana

da

Japa

n

Switz

erla

nd

Braz

il

0

2

4

6

8

5.805.00

3.07 2.872.45

1.591.27 1.12 0.96 0.92 0.82 0.67

Average = 1.9%

The rate of growth of labour productivity (LP) in the EU has been…modest

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6




7




8




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

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-40

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0

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120

India China Russia Korea Japan Canada Taiwan Austral ia United States

20132006

Diff

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ce O

ther

eco

nom

ies

-EU

ave

rage

(tho

usan

dsof 2

010

euro

s 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

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80

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120

India Australia China Russia Canada Japan Taiwan Korea United States

20132006

Diff

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ther

eco

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ies

-EU

ave

rage

(tho

usan

dsof 2

010

euro

s 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

Diff

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eco

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ies -E

U a

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India China Russia Korea Canada Japan Austral ia Taiwan United States

Higher than EU28 average & Converging

III

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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

Diff

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y ind

ustr

y US -E

U a

vera

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thou

sand

s of 2

010

euro

s PPS

)

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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

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MFP contribution was negative in the 5 big EU countries.

Figure 6. Contributions to GDP growth, 2007-2012 (Percentages)

France Germany Italy Spain UK US-3

-2

-1

0

1

2

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

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

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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 Assetso R&Do Other Intangible Assets: Organizational Capital and Training

What might be the sources of EU disappointing performance?

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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.

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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

Uni

ted

Stat

esSw

eden

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EU15

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reec

e0

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1210.8

8.4 8.37.5 7.4 7.3 7.1 6.9 6.8 6.3 6.3 6.2 6.1 6.0

5.24.5 4.5 4.3

2.1

EU15 average = 6.3%

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ted

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Net

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rtuga

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g0.0

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1.61.3

1.1 1.1 0.9 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

EU15 average = 0.9%

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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

Source: PREDICT database elaborated by Ivie and JRC-IPTS

a) BERD/GDP b) GBAORD/GDP

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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)



Swed

enFi

nlan

dU

nite

d St

ates

Ger

man

yAu

stria

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kFr

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Luxe

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EU15

Slov

enia

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King

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rland

sIre

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Spai

nIta

lyPo

rtuga

lG

reec

e0.0

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1.0

1.5

2.0

2.52.21 2.15

1.97

1.63 1.591.45

1.13 1.12 1.09 1.06 1.000.83 0.75 0.75

0.63 0.61 0.54 0.51

0.14

EU15 average = 1.06%

Uni

ted

Stat

es

Swed

en

Aust

ria

Portu

gal

Italy

Cze

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epub

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EU15

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Net

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Spai

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Slov

enia

0.0

0.1

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1.0 0.94

0.80

0.61

0.520.46

0.40 0.37 0.370.31 0.29 0.26

0.22 0.19 0.18 0.160.11

EU15 average = 0.29%

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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.


Uni

ted

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dom

Uni

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Stat

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e0.0

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2.9

2.4 2.32.1

1.9 1.81.6 1.6

1.5 1.5 1.4 1.4 1.3 1.31.0 1.0 0.9

0.7

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EU15 average = 1.6%

Uni

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g0.0

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0.30.2

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0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.10.0

0.0 0.0

EU15 average = 0.1%

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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)


Den

mar

kU

nite

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ates

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Aust

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Portu

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e0.0

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1.41.3

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1.00.9 0.9

0.8 0.80.8 0.8 0.7 0.7

0.6 0.5 0.5 0.5 0.50.4 0.4

0.0

EU15 average = 0.8%

Uni

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King

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ece

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n0.0

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0.90.8

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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

EU15 average = 0.3%


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• The EU has a serious productivity problem. The gap with respect to the US has increased, specially since 2009. The Asian countries are rapidly closing 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 the services 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, the superiority of the US is overhelming both for the market and non-market economy. Greece, Italy and Spain are lagging behind also in all of 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 - Open Session

Economy & Finance

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