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Capital and labour (mis)allocation in the euro area: Some stylized facts and determinants

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  • Elisa Gamberoni

    () (European Central Bank)

  • Claire Giordano

    () (Banca d'Italia)

  • Paloma Lopez-Garcia

    () (European Central Bank)

Abstract

We analyse the evolution of capital and labour (mis)allocation across firms in five euro-area countries (Belgium, France, Germany, Italy and Spain) and eight main sectors of the economy during the period 2002-2012. Three key stylized facts stand out. First, in all countries except Germany, capital allocation worsened over time whereas the efficiency of labour reallocation did not change significantly. Second, the observed increase in capital misallocation has been particularly marked in services compared with industry. Third, misallocation of both labour and capital decreased in all countries in 2009 and again for some countries/sectors in 2011-2012. We then take stock of the possible drivers of input misallocation dynamics in a standard panel regression framework. Restrictive bank lending standards and heightened demand uncertainty in certain years led to growth in capital misallocation, whereas since 2002 overall deregulation in both the product and labour markets has helped dampen input misallocation dynamics. Controlling for all variables, the Great Recession per se improved the allocative efficiency of both capital and labour.

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  • Elisa Gamberoni & Claire Giordano & Paloma Lopez-Garcia, 2016. "Capital and labour (mis)allocation in the euro area: Some stylized facts and determinants," Questioni di Economia e Finanza (Occasional Papers) 349, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:opques:qef_349_16
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    Cited by:

    1. Jan Hagemejer & Peter Szewczyk & Joanna Tyrowicz, 2018. "Misallocations go a long way: evidence from firm-level data," GRAPE Working Papers 31, GRAPE Group for Research in Applied Economics.
    2. Fabiano Schivardi & Enrico Sette & Guido Tabellini, 2017. "Credit misallocation during the European financial crisis," Temi di discussione (Economic working papers) 1139, Bank of Italy, Economic Research and International Relations Area.
    3. Dan Andrews & Filippos Petroulakis, 2017. "Breaking the Shackles: Zombie Firms, Weak Banks and Depressed Restructuring in Europe," OECD Economics Department Working Papers 1433, OECD Publishing.
    4. Yuriy Gorodnichenko & Debora Revoltella & Jan Svejnar & Christoph T. Weiss, 2018. "Resource Misallocation in European Firms: The Role of Constraints, Firm Characteristics and Managerial Decisions," NBER Working Papers 24444, National Bureau of Economic Research, Inc.
    5. Andrea Linarello & Andrea Petrella, 2017. "Productivity and Reallocation: Evidence from the Universe of Italian Firms," International Productivity Monitor, Centre for the Study of Living Standards, vol. 32, pages 116-136, Spring.
    6. Adamopoulou, Effrosyni & Bobbio, Emmanuele & De Philippis, Marta & Giorgi, Federico, 2018. "Reallocation and the Role of Firm Composition Effects on Aggregate Wage Dynamics," IZA Discussion Papers 11313, Institute of Labor Economics (IZA).
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    9. Fidora, Michael & Giordano, Claire & Schmitz, Martin, 2017. "Real exchange rate misalignments in the euro area," Working Paper Series 2108, European Central Bank.
    10. Sara Calligaris & Massimo Del Gatto & Fadi Hassan & Gianmarco I P Ottaviano & Fabiano Schivardi & Tommaso MonacelliManaging Editor, 2018. "The productivity puzzle and misallocation: an Italian perspective," Economic Policy, CEPR;CES;MSH, vol. 33(96), pages 635-684.
    11. Francesco Manaresi & Nicola Pierri, 2018. "Credit supply and productivity growth," BIS Working Papers 711, Bank for International Settlements.
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    23. Sara Calligaris & Massimo Del Gatto & Fadi Hassan & Gianmarco I P Ottaviano & Fabiano Schivardi & Tommaso MonacelliManaging Editor, 2018. "The productivity puzzle and misallocation: an Italian perspective," Economic Policy, CEPR;CES;MSH, vol. 33(96), pages 635-684.

    More about this item

    Keywords

    total factor productivity; allocative efficiency; capital; labour; Great Recession;

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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