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Unraveling the Productivity Paradox: Evidence for Germany

Author

Listed:
  • Christofzik Désirée I.

    (German University of Administrative Sciences, Speyer, Germany)

  • Elstner Steffen

    (German Supreme Audit Institution, Berlin, Germany)

  • Feld Lars P.

    (Walter Eucken Institute and Albert-Ludwigs-University, Freiburg, Germany)

  • Schmidt Christoph M.

    (RWI Essen and Ruhr-Universität Bochum (RUB), Essen, Germany)

Abstract

Despite massive digitization efforts, the German economy has experienced a marked slowdown in its productivity growth. This paper empirically analyzes three prominent explanations for this development. First, using a novel quarterly utilization-adjusted total factor productivity measure for the German economy, we find that the slowdown in U.S. productivity growth since the mid-2000s had only a negligible impact on the German productivity trend. Second, the structural shift towards services in the German economy explains a sizeable share of the weaker aggregate productivity gains. This transformation process is associated with a strong labor market performance. And third, employing a novel identification procedure, we show that technological progress in the German information and communication technology (ICT) producing sector stimulates both, aggregate output and employment growth. Its effect on aggregate productivity is, however, small.

Suggested Citation

  • Christofzik Désirée I. & Elstner Steffen & Feld Lars P. & Schmidt Christoph M., 2024. "Unraveling the Productivity Paradox: Evidence for Germany," German Economic Review, De Gruyter, vol. 25(3), pages 165-207.
    • Handle: RePEc:bpj:germec:v:25:y:2024:i:3:p:165-207:n:1001
    DOI: 10.1515/ger-2023-0094
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    More about this item

    Keywords

    labor productivity; technology shocks; digitization; structural VARs; purified TFP;
    All these keywords.

    JEL classification:

    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General

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