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Why is Productivity Growth in the Euro Area so Sluggish?

  • Marcello M. Estevão

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.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 04/200.

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Length: 36
Date of creation: 01 Oct 2004
Date of revision:
Handle: RePEc:imf:imfwpa:04/200
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  1. Dale W. Jorgenson, 2003. "Information Technology and the G7 Economies," World Economics, World Economics, Economic & Financial Publishing, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 4(4), pages 139-169, October.
  2. Marcello M. Estevão, 2003. "Do Active Labor Market Policies Increase Employment?," IMF Working Papers 03/234, International Monetary Fund.
  3. David G. Blanchflower & Andrew J. Oswald, 1989. "The Wage Curve," NBER Working Papers 3181, National Bureau of Economic Research, Inc.
    • Blanchflower, D. & Oswald, A., 1989. "The Wage Curve," Papers 340, London School of Economics - Centre for Labour Economics.
  4. David Card, 1995. "The Wage Curve: A Review," Journal of Economic Literature, American Economic Association, vol. 33(2), pages 285-299, June.
  5. Marcello M. Estevão & Nigar Nargis, 2002. "Wage Moderation in France," IMF Working Papers 02/151, International Monetary Fund.
  6. Paul Schreyer, 2000. "The Contribution of Information and Communication Technology to Output Growth: A Study of the G7 Countries," OECD Science, Technology and Industry Working Papers 2000/2, OECD Publishing.
  7. Peter Sutherland, 2003. "The Outlook for World Trade," World Economics, World Economics, Economic & Financial Publishing, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 4(3), pages 27-34, July.
  8. Lucia Foster & John Haltiwanger & C.J. Krizan, 2002. "The Link Between Aggregate and Micro Productivity Growth: Evidence from Retail Trade," NBER Working Papers 9120, National Bureau of Economic Research, Inc.
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