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

Fabrizio Colonna (), Filippo Scoccianti () and Eliana Viviano ()
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Fabrizio Colonna: Bank of Italy
Filippo Scoccianti: Bank of Italy
Eliana Viviano: Bank of Italy

No 918, Questioni di Economia e Finanza (Occasional Papers) from Bank of Italy, Economic Research and International Relations Area

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.

Keywords: productivity; factor input prices; cost of capital; euro area (search for similar items in EconPapers)
JEL-codes: E24 E31 J23 J30 (search for similar items in EconPapers)
Date: 2025-04
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