Why is Productivity Growth in the Euro Area so Sluggish?

Marcello Estevão

No 2004/200, IMF Working Papers from International Monetary Fund

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.

Keywords: WP; productivity growth; structural change; capital deepening; wage moderation; ICT capital deepening; quality change; quality growth; productivity acceleration; labor productivity deceleration; labor quality; productivity database; acceleration in ICT-producing industry; productivity deceleration; labor productivity growth gap; labor productivity acceleration in ICT-producing industry; Labor productivity; Productivity; Capital productivity; Total factor productivity; Europe (search for similar items in EconPapers)
Pages: 36
Date: 2004-10-01
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Citations: View citations in EconPapers (16)

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