Why is Productivity Growth in the Euro Area so Sluggish?

Author/Editor:

Marcello M. Estevão

Publication Date:

October 1, 2004

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

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.

Series:

Working Paper No. 2004/200

Subject:

Capital productivity Labor Labor productivity Production Productivity Total factor productivity

English

Publication Date:

October 1, 2004

ISBN/ISSN:

9781451860191/1018-5941

Stock No:

WPIEA2002004

Pages:

36

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