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Long-term labour productivity and GDP projections for the EU25 Member States : a production function framework

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  • Carone, Giuseppe
  • Denis, Cécile
  • Mc Morrow, Kieran
  • Mourre, Gilles
  • Röger, Werner

Abstract

This paper presents the results of long run labour productivity and GDP growth rate projections (until 2050) for each of the 25 EU Member States and provides a detailed overview of the forecast methodology used. These projections were undertaken in order to provide an internationally comparable macroeconomic framework against which to assess the potential economic and fiscal effects of ageing populations. The projections presented in this paper, using a common production function methodology for all 25 countries, show the GDP growth rate effects of an assumptions-driven extrapolation of recent trends in employment and labour productivity. These base case projections reflect the working assumption of “no policy change”.Various sensitivity tests are carried out to check the GDP per capita impact of some factors which have been excluded from the baseline scenario for reasons of simplicity or because of a lack of consensus in the academic literature. Some of the interesting conclusions that emerge from these sensitivity tests include : • Firstly, the GDP per capita impact of changes in the participation rate assumption used in the projections is much greater than for assumed changes in the share of part-time employment (i.e. in average hours worked per worker). • Secondly, the negative effect of a change in the age-structure of the population is fairly limited, although it is accepted that the labour productivity of an individual is likely to decline after the age of 55. A very strong fall in the productivity of older workers compared with that of prime-age workers would be required to significantly depress total labour productivity. Such an outcome, on the basis of current evidence, appears rather unlikely. • Thirdly, changing the TFP growth rate targets (e.g. use of the 1990’s average instead of the long-term 1970-2004 average) could strongly affect the projections. • Finally, an assumption of productivity convergence in levels substantially alters the projections for most EU10 countries but leaves the EU15 almost unchanged. JEL classific

Suggested Citation

  • Carone, Giuseppe & Denis, Cécile & Mc Morrow, Kieran & Mourre, Gilles & Röger, Werner, 2006. "Long-term labour productivity and GDP projections for the EU25 Member States : a production function framework," MPRA Paper 744, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:744
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    3. Jensen, Henning Tarp, 2009. "General equilibrium impact evaluation of road sector investment programs in Ghana," Conference papers 331858, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    4. Jana Znidarsic, 2010. "Age management in Slovenian enterprises: the viewpoint of older employees," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 28(2), pages 271-301.
    5. Fritz Breuss, 2006. "Teilstudie 4: Europäische Wirtschaftspolitik: Binnenmarkt, WWU, Lissabon, Erweiterung," WIFO Studies, WIFO, number 27443.
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    7. Luke Brander & Ingo Bräuer & Holger Gerdes & Andrea Ghermandi & Onno Kuik & Anil Markandya & Ståle Navrud & Paulo Nunes & Marije Schaafsma & Hans Vos & Alfred Wagtendonk, 2012. "Using Meta-Analysis and GIS for Value Transfer and Scaling Up: Valuing Climate Change Induced Losses of European Wetlands," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 52(3), pages 395-413, July.
    8. Felipe, Jesus & Kumar, Utsav & Abdon, Arnelyn, 2012. "Using capabilities to project growth, 2010–2030," Journal of the Japanese and International Economies, Elsevier, vol. 26(1), pages 153-166.
    9. Andrés Rodríguez-Pose & Roberto Ganau, 2022. "Institutions and the productivity challenge for European regions," Journal of Economic Geography, Oxford University Press, vol. 22(1), pages 1-25.
    10. Vytautas Tvaronavičius & Manuela Tvaronavičiene, 2007. "Role of fixed investments in economic growth of country: Lithuania in European context," Journal of Business Economics and Management, Taylor & Francis Journals, vol. 9(1), pages 57-64, December.
    11. Mellado, Aida Gonzalez & Gay, Stephan Hubertus & M'Barek, Robert & Ferrari, Emanuele, 2010. "Evaluation of Non-Tariff Measures for African agricultural exports to the EU in a CGE framework," Conference papers 332012, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    12. Péter Halmai & Viktória Vásáry, 2010. "Growth crisis in the EU — challenges and prospects," Intereconomics: Review of European Economic Policy, Springer;ZBW - Leibniz Information Centre for Economics;Centre for European Policy Studies (CEPS), vol. 45(5), pages 329-336, September.
    13. Michael Buchner, 2020. "Fiscal Policy in an Age of Secular Stagnation," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 62(3), pages 398-429, September.
    14. Serguei Kaniovski & Fritz Breuss & Thomas Url, 2006. "Teilstudie 22: Modellsimulationen ausgewählter wirtschaftspolitischer Maßnahmen," WIFO Studies, WIFO, number 27461.
    15. Alina Ștefania CHENIC (CREȚU) & Alin Ioan CREȚU & Laurențiu TEȘCAN, 2018. "A Long Term Analysis of Two Undeniable Realities of the XXI Century - Global Economic Crisis and Demographic Aging," REVISTA DE MANAGEMENT COMPARAT INTERNATIONAL/REVIEW OF INTERNATIONAL COMPARATIVE MANAGEMENT, Faculty of Management, Academy of Economic Studies, Bucharest, Romania, vol. 19(2), pages 196-212, May.
    16. Halmai, Péter, 2015. "Az európai növekedési potenciál eróziója és válsága [Erosion and crisis in European growth potential]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(4), pages 379-414.
    17. Herman de Kwaatsteniet, 2011. "Demand Variability in Supply Chains: The Influence of Global developments and Globalization on the Local Dutch Steel Industry," Working Papers 2011/32, Maastricht School of Management.
    18. Barrios, Salvador & Burgelman, Jean-Claude, 2007. "Information and Communication Technologies, Market Rigidities and Growth: Implications for EU Policies," MPRA Paper 5838, University Library of Munich, Germany.
    19. Michael Donadelli & Vahid Mojtahed & Antonio Paradiso, 2015. "Technological Progress, Investment Frictions and Business Cycle: New Insights from a Neoclassical Growth Model," Working Papers LuissLab 15119, Dipartimento di Economia e Finanza, LUISS Guido Carli.
    20. Grzegorz Jedrzejczak, 2016. "Aging Poland: Can the Doomsday Scenario Be Avoided? (Starzejaca sie Polska. Czy mozna uniknac scenariusza katastrofy? )," Problemy Zarzadzania, University of Warsaw, Faculty of Management, vol. 14(59), pages 60-72.
    21. Péter Halmai & Viktória Vásáry, 2010. "Real convergence in the new Member States of the European Union (Shorter and longer term prospects)," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 7(1), pages 229-253, June.
    22. P. Halmai & V. Vásáry, 2011. "Crisis and economic growth in the EU," Acta Oeconomica, Akadémiai Kiadó, Hungary, vol. 61(4), pages 465-485, December.
    23. Heidler, Matthias & Müller, Christoph & Weddige, Olaf, 2009. "Measuring accrued-to-date liabilities of public pension systems: Method, data and limitations," FZG Discussion Papers 37, University of Freiburg, Research Center for Generational Contracts (FZG).
    24. Fritz Breuss, 2006. "Warum wächst die Wirtschaft in Österreich rascher als in Deutschland?," WIFO Working Papers 280, WIFO.
    25. Péter Halmai & Viktória Vásáry, 2012. "Convergence crisis: economic crisis and convergence in the European Union," International Economics and Economic Policy, Springer, vol. 9(3), pages 297-322, September.

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    More about this item

    Keywords

    Productivity; ageing; long-term projections; production function; labour productivity; older workers;
    All these keywords.

    JEL classification:

    • J1 - Labor and Demographic Economics - - Demographic Economics
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

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