Chapter 3: Europe’s Productivity Performance in Comparative Perspective: Trends, Causes and Recent Developments
* Bart van Ark, Mary O’Mahony and Marcel P. Timmer 3.1 INTRODUCTION The benefits of the modern knowledge economy differ greatly between advanced economies. The EU-15, that is, the 15 European Union countries that constituted the Union up to 2004, which is the focus of this chapter, experienced a sharp slowdown in labour productivity growth (measured as GDP per hour of work) from an annual rate of 2.7 per cent during the period 1973–95 to 1.5 per cent during the period 1995–2007. At the same time, labour productivity in the United States (US) increased sharply from 1.3 per cent to 2.1 per cent between 1973–95 and 1995–2007 respectively. While differences in the timing of business cycles in the US and the European Union (EU) may have some effect on this comparison, they do not explain these divergent trend growth rates. The slower labour productivity growth rates in Europe compared to the US since 1995 reverse a long-term pattern of convergence. This chapter first reviews the growth and productivity performance in Europe since 1950, considering three periods characterized by different drivers of productivity. In the period 1950–73, European growth was characterized by a traditional catch-up pattern based on the imitation and adaptation of foreign technology, coupled with strong investment and supporting institutions. However, the traditional post-war convergence process came to an end by the mid-1970s (Crafts and Toniolo, 1996; Eichengreen, 2007). Then, in the period from 1973 to 1995, output and productivity growth in both Europe and...
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