Productivity vs hours Productivity vs hours growth growth

Presentation based on: Presentation based on: F.Daveri, “Labor productivity growth in Europe: an update”, background F.Daveri, “Labor productivity growth in Europe: an update”, background

paper for the Seventh CEPS Macroeconomic Policy Group Reportpaper for the Seventh CEPS Macroeconomic Policy Group Report

Francesco DaveriFrancesco DaveriUniversità di ParmaUniversità di Parma

OutlineOutline

Question: is there a trade-off between Question: is there a trade-off between productivity and hours?productivity and hours?

My contribution: provide some aggregate My contribution: provide some aggregate and industry evidenceand industry evidence

EU vs US - aggregateEU vs US - aggregate EU countries - aggregateEU countries - aggregate Italy – industry dataItaly – industry data

Labor productivity growth, EU vs. USLabor productivity growth, EU vs. US

Is there a EU productivity drift? YesIs there a EU productivity drift? Yes It has been there for a long while nowIt has been there for a long while now It got worse in the early 2000sIt got worse in the early 2000s Mis-measurement and cyclical adjustment does not change much Mis-measurement and cyclical adjustment does not change much

the picturethe picture

0

1

2

3

4

1970-1980

1980-1995

1995-2003

1995-2000

2000-2003

USA

EU11

Figure 2: Total hours w orked, US vs EU11

EU11=EU15-(Aut,Gre,Lux,Por)

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

1970-80 1980-95 1995-2003 1995-2000 2000-03

US EU-11

EU vs. US – summing upEU vs. US – summing up

Evidence of LONG-RUN NEGATIVE Evidence of LONG-RUN NEGATIVE CORRELATION between growth of hours CORRELATION between growth of hours and growth of labor productivityand growth of labor productivity

When hours growth is high (US in the When hours growth is high (US in the 1970s and the1980s and EU in 1995-03), 1970s and the1980s and EU in 1995-03), labor productivity growth is lowlabor productivity growth is low

When productivity growth is high (US in When productivity growth is high (US in 1995-03 and the EU in the 1970s and the 1995-03 and the EU in the 1970s and the 1980s), growth of hours is low1980s), growth of hours is low

Productivity and employment growth Productivity and employment growth in the EU and the US (1995-2002)in the EU and the US (1995-2002)

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

5.00

0.00 1.00 2.00 3.00 4.00 5.00 6.00

Employment growth, 1995-2002

Pro

duct

ivity g

row

th, 1

99

5-2

002

US

Greece

Finland

Ireland

Spain

Netherlands

Germany

DenmarkAustria

EU-15

Italy

UK

Sweden/Portugal

Belgium/Norway/France

Switzerland

Source: Daveri (2004), Is there a European productivity problem?, CEPS WD 205, July 2004

EU – summing upEU – summing up

Trade-off between hours and productivity not ubiquitousTrade-off between hours and productivity not ubiquitous Ireland, the UK and Finland: trade-off not thereIreland, the UK and Finland: trade-off not there Germany as well (everything was just bad)Germany as well (everything was just bad) In the other fast growing countries, usually low growth of In the other fast growing countries, usually low growth of

hourshours Rich: Sweden, Austria, Denmark. Also France, to some extent.Rich: Sweden, Austria, Denmark. Also France, to some extent. Poor: Formerly socialist countries, Greece, PortugalPoor: Formerly socialist countries, Greece, Portugal

Slow growing countries successful in creating jobsSlow growing countries successful in creating jobs Italy, Spain, NetherlandsItaly, Spain, Netherlands

Hence: trade-off often but not always there. Not just in the EU Hence: trade-off often but not always there. Not just in the EU

TOTAL HOURS Growth rates, % pointsISIC Rev.3

1993-2003

1993-1998

1998-2003

AGRICULTURE, HUNTING AND FORESTRY 01-02 -3.92 -4.57 -3.26

MINING AND QUARRYING 10-14 -2.08 -1.96 -2.21

Total manufacturing 15-37 -0.08 0.03 -0.20

Non-durable manufacturing 15-28 -0.19 0.00 -0.38

Durable manufacturing 29-37 0.14 0.09 0.20

ELECTRICITY, GAS AND WATER SUPPLY 40-41 -3.03 -3.01 -3.06

CONSTRUCTION 45 0.91 -0.55 2.40

TOTAL SERVICES 50-99 1.16 0.86 1.46

BUSINESS SECTOR SERVICES 50-74 1.47 1.02 1.92

WHOLESALE AND RETAIL TRADE; REPAIRS 50-52 0.13 -0.32 0.58

HOTELS AND RESTAURANTS 55 2.10 1.63 2.56

TRANSPORT AND STORAGE AND COMMUNICATION 60-64 0.66 -0.24 1.56

FINANCIAL INTERMEDIATION 65-67 0.09 0.38 -0.19

REAL ESTATE, RENTING AND BUSINESS ACTIVITIES 70-74 4.53 4.54 4.52

NON-AGRICULTURE BUSINESS SECTOR s10-74 0.37 -0.10 0.84

Total 01-99 0.42 0.06 0.79

ItalyItaly

VALUE ADDED PER HOUR WORKED Growth rates, %ISIC Rev.3

1993-2003

1993-1998

1998-2003

AGRICULTURE, HUNTING AND FORESTRY 01-02 3.92 6.13 1.76

MINING AND QUARRYING 10-14 1.43 3.63 -0.73

Total manufacturing 15-37 1.41 2.75 0.10

Non-durable manufacturing 15-28 1.24 2.15 0.34

Durable manufacturing 29-37 1.84 4.16 -0.43

ELECTRICITY, GAS AND WATER SUPPLY 40-41 6.10 5.40 6.81

CONSTRUCTION 45 0.17 0.21 0.14

TOTAL SERVICES 50-99 0.80 1.04 0.57

BUSINESS SECTOR SERVICES 50-74 0.84 1.29 0.38

WHOLESALE AND RETAIL TRADE; REPAIRS 50-52 1.74 2.95 0.54

HOTELS AND RESTAURANTS 55 -0.02 0.45 -0.48

TRANSPORT AND STORAGE AND COMMUNICATION 60-64 2.28 2.79 1.77

FINANCIAL INTERMEDIATION 65-67 1.51 2.32 0.71

REAL ESTATE, RENTING AND BUSINESS ACTIVITIES 70-74 -1.78 -2.51 -1.05

NON-AGRICULTURE BUSINESS SECTOR (diversa da def OECD) s10-74 1.52 2.32 0.72

Total 01-99 1.31 1.90 0.72

ItalyItaly

Italy – summing upItaly – summing up

Negative correlation between employment and labor Negative correlation between employment and labor productivity growth. Less so over the 1990s.productivity growth. Less so over the 1990s.

1993-03: -0.631993-03: -0.63

1993-98: -0.751993-98: -0.75

1998-2003: -0.291998-2003: -0.29

Two comments Two comments very high negative correlation possibly sign of very high negative correlation possibly sign of

fast technical change and parallel mismatch of fast technical change and parallel mismatch of old abilitiesold abilities

When correlation is low at times of declining When correlation is low at times of declining productivity growth, simply very bad newsproductivity growth, simply very bad news