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

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Listed:
  • 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.

Suggested Citation

  • 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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    More about this item

    Keywords

    total factor productivity; allocative efficiency; capital; labour; Great Recession;
    All these keywords.

    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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