The great British jobs and productivity mystery
João Paulo Pessoa, John Van Reenen 28 June 2014
The fall in productivity in the UK following the Great Recession was particularly bad, whereas the hit to jobs was less severe. This column discusses recent research exploring this puzzle. Although the mystery has not been fully solved, an important part of the explanation lies in the flexibility of wages combined with very low investment.
With some economic recovery having finally got underway, the UK is still feeling the repercussions of the so-called ‘Great Recession’. National output, as measured by GDP, fell by over 7% from its peak in January 2008 – the biggest fall since the inter-war years – and only returned to its pre-crisis level in April 2014 (NIESR 2014). This has been the slowest recovery in this century (see Figure 1).
Figure 1. The profile of recession and recovery
Europe's nations and regions
unemployment, productivity growth, UK, Great Recession
Internationalisation and innovation of firms: Give them one roof
Carlo Altomonte, Tommaso Aquilante, Gábor Békés, Gianmarco I.P. Ottaviano 21 March 2014
Internationalisation and innovation policies are frequently considered to be key drivers of growth. This column documents a strong positive association between internationalisation, innovation, and productivity at the firm-level across seven European countries. This association continues to hold after controlling for country, size, industrial sector, and firm specific characteristics, with some evidence of causality running from innovation to internationalisation. The analysis suggests that policymakers should coordinate, if not integrate, innovation and internationalisation policies in order to boost productivity and growth.
Policymakers traditionally have attempted to encourage internationalisation based on the implicit rationale that the latter is associated with productivity and/or employment growth. At the same time, since innovation is the key driver of productivity growth, much attention has been devoted to the specific channels through which trade and innovation are linked (see Aiginger 2011). However, in most European countries, as well as at the EU level, these policies are carried out through various, often unrelated agencies – as found by EIM (2010), a European report reviewing some 130 programmes.
Productivity and Innovation
internationalisation, innovation, productivity growth
Financial globalisation and productivity growth
M Ayhan Kose, Eswar Prasad, Marco E Terrones 05 January 2009
There is a vast empirical literature analysing the impact of financial openness on economic growth but far less attention has been paid to its effects on productivity growth. This is surprising given the strong evidence that productivity growth is the main driver of long-term economic growth. This column argues that financial openness in fact has a positive impact on productivity growth, although the effects are subtle.
Theoretical models posit a number of channels through which openness to international financial flows ought to increase economic growth. However, there is little robust empirical evidence of a causal link between these two variables (see Obstfeld, 2008). If the growth benefits of financial openness are so elusive in the data, is it worthwhile for developing and emerging market economies to expose themselves to the risks associated with financial globalisation?
total factor productivity, productivity growth, financial globalisation
Manufacturing restructuring and the role of real exchange rate shocks
Karolina Ekholm, Andreas Moxnes, Karen-Helene Ulltveit-Moe 30 August 2008
Exporting industries loathe real exchange rate appreciations that hurt their ability to sell abroad. But this column says that such shocks are also good news, as they may trigger industry restructuring and spur productivity growth.
A weak dollar and a record low US interest rate are regarded as good news by US exporters but worry European manufacturers. Export industry representatives and governments fear real appreciations for their potential negative influence on profitability and employment.
exchange rates, productivity growth, Norway, heterogeneous firms
Europe’s employment growth revived after 1995 while productivity growth slowed: Is it a coincidence?
Ian Dew-Becker, Robert J. Gordon 15 April 2008
Europe’s jobs outlook has brightened over the past decade. Recent research suggests that about half the rise in job creation is due to labour market reforms, but much of the rest is due to changing social norms concerning female and immigrant labour force participation. But what’s good for European job creation seems to be bad for labour productivity growth – a trade-off that European policymakers must be willing to acknowledge and address.
As of 1995, Europe (the EU-15) had almost caught up to the PPP-adjusted level of US labour productivity, while its per-capita income ratio to the US stagnated at only 70 percent. This discrepancy is explained by a decline over 1960-1995 in hours worked per capita in Europe compared to the US.
Labour markets Productivity and Innovation
productivity growth, labour productivity, employment growth
Offshoring, not enough to beat Italy's productivity slowdown
Francesco Daveri , Cecilia Jona-Lasinio 29 November 2007
The public debate on offshoring has created more heat than light to date, but researchers are beginning to get a picture of its real economic impact. New evidence from Italy, based on firm-level data and a direct measure of offshoring, shows that offshoring of parts and components boosts domestic productivity while offshoring of services does not.
The offshoring of activities of manufacturing firms and industries often features at the centre-stage of the political arena for its allegedly negative effects on domestic employment. During the 2004 US presidential campaign, the concern that outsourcing had gone too far creating more hardships than necessary for American unskilled workers was one of the hot political issues. Not by chance academic research on this topic (Feenstra and Hanson, 1996 and 1999, being perhaps the most celebrated contributions in this area)1 has mostly focused on such effects.
Italy, manufacturing, offshoring, productivity growth