Productivity and Convergence in the EU

For most of the postwar period both labour and total factor productivity growth in the EU was higher than in the US. The 1990s witnessed a change in this trend with the US experiencing higher growth rates for the first time in decades. This was partly due to the end of catch-up growth as many larger EU Member States had reached US levels by the beginning of the decade with also some evidence of a higher ‘New Economy’ impact in the US. The productivity record of the UK was poor relative to its major European competitors throughout most of the postwar period, although this relative decline appears to have come to an end. This paper presents figures on relative productivity for the total EU and individual Member States in the 1990s. Both postwar convergence and trends in the 1990s are discussed in terms of a number of factors which result in the emergence of differences across European countries. These include the skill composition of the workforce, the rate of introduction of new technology and the institutional environment in which firms operate. The latter include the stability of the macroeconomic environment and aspects of competition and regulation. The paper concludes that trends in productivity largely reflect long-term structural aspects but that EMU membership might have a small favourable effect on UK productivity.