Why did Europe’s productivity catch-up sputter out? a tale of tigers and tortoises
AbstractThis paper takes a different approach to examining the sharp turnaround in EU relative to U. S. labor productivity growth since 1995. The vast majority of the literature focuses on the American growth revival. But close to half of the turnaround was caused by a European retardation. What caused that retardation? Our paper shows that none of the consensus explanations of the American revival provide any help at all in explaining the European retardation. It is sui generis and therein lies a tale that has not previously been told. ; Europe has faltered across the board. The deceleration of its productivity growth is not explained at all by ICT production and only to a small degree by retailing/wholesaling. Rather, the big European countries have failed in nearly every dimension. The retardation of Europe is illuminated by dividing up the EU-15 countries into Tigers, a Middle group, and Tortoises. ; Our first surprise in examining the data is to find that the EU-US turnaround in labor productivity growth was not just a reflection of an equivalent turnaround in total factor productivity growth. Capital deepening also faltered in Europe, indicting all the macroeconomic determinants of economy-wide investment as part of Europe’s problem. ; The most striking aspect of our results is that the failing of the Tortoise countries is widespread, spanning industries as diverse as agriculture, wholesale trade, mining, chemicals, construction, fabricated metals, and clothing. Our explanation is that Europe’s previous catch-up to the U. S. productivity level before 1995 was artificial – by making labor expensive, Europe raised its average product. But after 1995 as labor market reforms have helped to make labor cheaper, so the average product of labor has been pushed down and its growth rate has faltered. The falling behind of Europe is quite simple to explain; European regulations defied the laws of labor market equilibrium for decades, and a slight leak in the dam holding back market forces has already led to faster growth in European employment and slower growth in productivity.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Federal Reserve Bank of San Francisco in its journal Proceedings.
Volume (Year): (2005)
Issue (Month): ()
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Bart van Ark & Robert Inklaar & Robert H. McGuckin, 2002. "'Changing Gear' - Productivity, ICT and Services Industries: Europe and the United States," Economics Program Working Papers 02-02, The Conference Board, Economics Program.
- Lucia Foster & John Haltiwanger & C.J. Krizan, 2002.
"The Link Between Aggregate and Micro Productivity Growth: Evidence from Retail Trade,"
NBER Working Papers
9120, National Bureau of Economic Research, Inc.
- C.J. Krizan & John Haltiwanger & Lucia Foster, 2002. "The Link Between Aggregate and Micro Productivity Growth: Evidence from Retail Trade," Working Papers 02-18, Center for Economic Studies, U.S. Census Bureau.
- Kevin J. Stiroh, 2002.
"Information Technology and the U.S. Productivity Revival: What Do the Industry Data Say?,"
American Economic Review,
American Economic Association, vol. 92(5), pages 1559-1576, December.
- Kevin J. Stiroh, 2001. "Information technology and the U.S. productivity revival: what do the industry data say?," Staff Reports 115, Federal Reserve Bank of New York.
- Robert J. Gordon, 1995.
"Is There a Tradeoff between Unemployment and Productivity Growth?,"
NBER Working Papers
5081, National Bureau of Economic Research, Inc.
- Gordon, Robert J, 1995. "Is There a Trade-off between Unemployment and Productivity Growth?," CEPR Discussion Papers 1159, C.E.P.R. Discussion Papers.
- Timmer, Marcel P. & Ypma, Gerard & Ark, Bart van der, 2003. "IT in the European Union: driving productivity divergence?," GGDC Research Memorandum 200363, Groningen Growth and Development Centre, University of Groningen.
- Inklaar, Robert & Mahony, Mary O' & Timmer, Marcel, 2003.
"ICT and Europe's productivity performance industry-level growth account comparisons with the United States,"
GGDC Research Memorandum
200368, Groningen Growth and Development Centre, University of Groningen.
- Robert Inklaar & Mary O'Mahony & Marcel Timmer, 2005. "ICT AND EUROPE's PRODUCTIVITY PERFORMANCE: INDUSTRY-LEVEL GROWTH ACCOUNT COMPARISONS WITH THE UNITED STATES," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 51(4), pages 505-536, December.
- van Ark, Bart & Inklaar, Robert, 2006. "Catching up or getting stuck? Europe's troubles to exploit ICT's productivity potential," GGDC Research Memorandum GD-79, Groningen Growth and Development Centre, University of Groningen.
- Martin Neil Baily & Jacob Funk Kirkegaard, 2004. "Transforming the European Economy," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 353.
- Raquel Ortega-Argilés & Mariacristina Piva & Marco Vivarelli, 2011.
"The Transatlantic Productivity Gap: Is R&D the Main Culprit?,"
IREA Working Papers
201103, University of Barcelona, Research Institute of Applied Economics, revised Mar 2011.
- Ortega-Argilés, Raquel & Piva, Mariacristina & Vivarelli, Marco, 2011. "The Transatlantic Productivity Gap: Is R&D the Main Culprit?," IZA Discussion Papers 5586, Institute for the Study of Labor (IZA).
- Raquel Ortega-Argilés & Mariacristina Piva & Marco Vivarelli, 2012. "The transatlantic productivity gap: Is R&D the main culprit?," DISCE - Quaderni del Dipartimento di Scienze Economiche e Sociali dises1284, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
- Gayle Allard & Peter H. Lindert, 2006.
"Euro-Productivity and Euro-Jobs since the 1960s: Which Institutions Really Mattered?,"
NBER Working Papers
12460, National Bureau of Economic Research, Inc.
- Peter Lindert & Gayle Allard, 2006. "EURO-PRODUCTIVITY AND EURO-JOBS SINCE THE 1960s: WHICH INSTITUTIONS REALLY MATTERED?," Working Papers 619, University of California, Davis, Department of Economics.
- Enrico Saltari & Giuseppe Travaglini, 2007. "Sources of Productivity Slowdown in European Countries During 1990s," Discussion Papers 07/24, Department of Economics, University of York.
- Saltari Enrico & Travaglini Giuseppe, 2008. "Il rallentamento della produttività del lavoro e la crescita dell'occupazione. Il ruolo del progresso tecnologico e della flessibilità del lavoro," Rivista italiana degli economisti, Società editrice il Mulino, issue 1, pages 3-38.
- Laura Turner & Hervé Boulhol, 2010. "Recent trends and structural breaks in US and EU15 labour productivity growth," Working Papers halshs-00963134, HAL.
- Richard Dion & Robert Fay, 2008. "Understanding Productivity: A Review of Recent Technical Research," Discussion Papers 08-3, Bank of Canada.
- Raquel Ortega-Argilés, 2012. "The Transatlantic Productivity Gap: A Survey Of The Main Causes," Journal of Economic Surveys, Wiley Blackwell, vol. 26(3), pages 395-419, 07.
- Bart Hobijn & Aysegul Sahin, 2006. "On Flexibity and Productivity," 2006 Meeting Papers 737, Society for Economic Dynamics.
- Gayle Allard, 2006. "Euro-productivity and euro-jobs since the 1960s: which institutions mattered?," Working Papers Economia wp06-22, Instituto de Empresa, Area of Economic Environment.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Diane Rosenberger).
If references are entirely missing, you can add them using this form.