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The slowdown of productivity in the euro area and the role of input prices

Author

Listed:
  • Fabrizio Colonna

    (Bank of Italy)

  • Filippo Scoccianti

    (Bank of Italy)

  • Eliana Viviano

    (Bank of Italy)

Abstract

We examine how changes in the relative prices of intermediate goods, labour and capital between 2021 and 2023 contributed to the stagnation of labour productivity in the euro area. The evidence for Germany, Italy and France shows that in addition to a significant increase in the cost of intermediate goods in 2021-22, the cost of capital also rose sharply in 2022-23, affecting the relative prices of production factors. The substitution of inputs in favour of labour explains the slowdown in labour productivity observed between 2021 and 2023. Moreover, since firms adjust their use of production factors with some lag and the prices of intermediate goods and capital relative to labour were still very high in 2024 compared with pre-pandemic levels, this substitution channel may hinder the rapid return of labour productivity to its pre-pandemic trend.

Suggested Citation

  • Fabrizio Colonna & Filippo Scoccianti & Eliana Viviano, 2025. "The slowdown of productivity in the euro area and the role of input prices," Questioni di Economia e Finanza (Occasional Papers) 918, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:opques:qef_918_25
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    File URL: https://www.bancaditalia.it/pubblicazioni/qef/2025-0918/QEF_918_25.pdf
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    More about this item

    Keywords

    productivity; factor input prices; cost of capital; euro area;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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