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Why is Productivity Growth in the Euro Area so Sluggish?

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  • Marcello M. Estevão

Abstract

Slow productivity growth has plagued the euro area since the mid-1990s. That is particularly striking in view of the large productivity gains in the United States during the same period. This paper shows that the deceleration in labor productivity in the euro area was caused by structural changes in wage formation that have affected the relative price of labor, increased the labor intensity of growth and, thus, reduced the rate of capital deepening. Technological shocks seem to have played a minor role in explaining slower productivity growth in the euro area. In addition, a surge in capital deepening and, mainly, TFP growth in key service industries in the United States explain a large part of the productivity growth gap between the two regions in the second half of the 1990s.

Suggested Citation

  • Marcello M. Estevão, 2004. "Why is Productivity Growth in the Euro Area so Sluggish?," IMF Working Papers 04/200, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:04/200
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    References listed on IDEAS

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    4. Marcello M. Estevão, 2003. "Do Active Labor Market Policies Increase Employment?," IMF Working Papers 03/234, International Monetary Fund.
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    7. 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.
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    9. Dale W. Jorgenson, 2003. "Information Technology and the G7 Economies," World Economics, World Economics, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 4(4), pages 139-169, October.
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    Citations

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    Cited by:

    1. Klaus Weyerstrass & Johannes Jaenicke, 2011. "Is more competition conducive to the macroeconomic performance in the euro area?," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 38(3), pages 351-380, July.
    2. Pierre-Alain Muet, 2006. "Impacts économiques de la révolution numérique," Revue économique, Presses de Sciences-Po, vol. 57(3), pages 347-375.
    3. Andrea Brasili & Loredana Federico, 2008. "Recent Developments in Productivity and the Role of Entrepreneurship in Italy: An Industry View," Rivista di Politica Economica, SIPI Spa, vol. 98(2), pages 179-214, March-Apr.
    4. Repkine, Alexandre, 2009. "Telecommunications Capital Intensity and Aggregate Production Efficiency: a Meta-Frontier Analysis," MPRA Paper 13059, University Library of Munich, Germany.
    5. Linehan, Suzanne & McQuinn, Kieran, 2008. "A Sectoral Analysis of the Average Work Week in Euro Area Countries," Quarterly Bulletin Articles, Central Bank of Ireland, pages 68-88, October.
    6. Rosella Nicolini, 2011. "Labour productivity in Spain: 1977-2002," Applied Economics, Taylor & Francis Journals, vol. 43(4), pages 465-485.
    7. Lionel Artige & Rosella Nicolini, 2006. "Labor productivity in Europe: Evidence from a sample of regions," CREPP Working Papers 0608, Centre de Recherche en Economie Publique et de la Population (CREPP) (Research Center on Public and Population Economics) HEC-Management School, University of Liège.
    8. Silvia Sgherri, 2005. "Long-Run Productivity Shifts and Cyclical Fluctuations; Evidence for Italy," IMF Working Papers 05/228, International Monetary Fund.
    9. Marcello M. Estevão, 2007. "Structural Changes And Labor Productivity Slowdownin The Euro Area," ENSAYOS SOBRE POLÍTICA ECONÓMICA, BANCO DE LA REPÚBLICA - ESPE, vol. 25(53), pages 336-367, January.
    10. Enrico Saltari & Giuseppe Travaglini, 2009. "The Productivity Slowdown Puzzle. Technological and Non-technological Shocks in the Labor Market," International Economic Journal, Taylor & Francis Journals, vol. 23(4), pages 483-509.
    11. Giorgio Calcagnini & Germana Giombini & Enrico Saltari, 2009. "Firms’ Investment in the Presence of Labor and Financial Market Imperfections," Working Papers 0901, University of Urbino Carlo Bo, Department of Economics, Society & Politics - Scientific Committee - L. Stefanini & G. Travaglini, revised 2009.

    More about this item

    Keywords

    Euro Area; Wage moderation; Productivity growth; structural change; capital deepening; labor productivity; ict; labor productivity growth; labor market; Macroeconomics: Production;

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