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European Productivity Growth is on the Rise

by TGeraghty Tue Sep 5th, 2006 at 11:07:22 PM EST

Hat tip to New Economist

According to the FT:

Are European workers turning into swots? Although the quality of the statistics is notoriously poor, productivity appears to have accelerated significantly. . . . Short periods of data must be interpreted with caution, and it is difficult to disentangle cyclical and structural effects. Nevertheless, it is possible to identify some significant changes in productivity that may be sustainable for a number of years.

  • First, through investment in information technology, Europe appears to be narrowing the "innovation gap" with the US.

  • Second, corporate restructuring has led to more efficient working practices.

More from the FT:

But the most important explanation may be developments in the labour market. Flexible, particularly part-time, employment has grown. Meanwhile, some full-time workers, such as those at Siemens, have agreed to work longer hours without full compensation. Both trends mean the rate of decline in aggregate hours worked appears to be falling.

Of course the FT would emphasize the labor market reform angle. I think, though, that diffusion of IT and more efficient working practices (some of which may admittedly be facilitated by smart reforms) are much more important. There's more background on the productivity issue here for anybody interested.

If sustained, this is good news for the European economy, and one more nail in the coffin of the "Europe is in economic decline" meme. One key will be to see if this sustained productivity growth can be combined with the more rapid job growth that Europe has enjoyed over the last decade or so.

"The rate of decline in aggrerate hours worked appears to be falling."

So basically, people who have jobs are working more hours, which means more GDP, but no more workers, so more GDP/worker.

I think we need to as the question:

Why is this kind of productivity good?

by Metatone (metatone [a|t] gmail (dot) com) on Wed Sep 6th, 2006 at 03:25:13 AM EST
Reading the New Economist link, it seems hourly productivity has increased too, which looks more like a good thing (doing more with less, as it were.)
by Metatone (metatone [a|t] gmail (dot) com) on Wed Sep 6th, 2006 at 06:02:28 AM EST
[ Parent ]
The goal of labor market "reform" is to lower the cost of workers, and, if I understand correctly, to get low qualified workers to be hired (they would otherwise be priced out of the market).

This effectively means hiring more low productivity workers to solve the unemployment problem. This directly leads to lower productivity (and productivity growth).

Then you have reforms to increase productivity. The easiest way to increase productivity, as France supposedly demonstrates, is to make labor expensive and unflexible, thus inciting companies to invest more in capital and less in labor.

So what's the right path?

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Wed Sep 6th, 2006 at 06:39:19 AM EST
Well, it depends on your goals and predictions.

Is a low qualified job better than living off benefits?

Then there's the whole mess of "what does productivity represent?"

But maybe this isn't the place for that discussion.

by Metatone (metatone [a|t] gmail (dot) com) on Wed Sep 6th, 2006 at 07:30:03 AM EST
[ Parent ]
Hiring younger or other "marginal" workers might temporarily cause productivity growth to fall, other things equal, but over time as they gain experience and otherwise augment their human capital their productiivity should rise. So increasing employment can be just as much an opportunity to riase future productivity as lower it. The Faini paper I linked to above suggests that something like this might have been at work over the last decade.

Also, if firms are innovating in technology and organization and investing in new capital, as European firms seem to be doing, then those effects might outweigh the negative productivity effects of bringing large numbers of temporarily low-productivity workers into the workforce.

by TGeraghty on Wed Sep 6th, 2006 at 09:44:03 AM EST
[ Parent ]

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