Lessons and Policy Implications for the Lisbon Strategy
INFER Advances in Economic Research series
Chapter 5: Does the European Union Need to Revive Productivity Growth?
Bart van Ark1 5.1 INTRODUCTION During the second half of the 1990s the comparative growth performance of Europe vis-à-vis the United States has undergone a marked change. For the first time since World War II labour productivity growth in most countries that are now part of the European Union (EU) fell behind the US for a considerable length of time. Until the beginning of the 1970s rapid labour productivity growth in the EU went together with a catching-up in terms of GDP per capita levels on the US. A first break in this pattern occurred in the mid 1970s. While catching-up in terms of labour productivity continued, the gap in GDP per capita levels between the EU and the US did not narrow any further after 1975 (see Figure 5.1). This differential performance reflects the slowdown in the growth of labour input in Europe, which was related to increased unemployment, a decline in the labour force participation rates and a fall in average working hours. The second break, which is the focus of this chapter, occurred in the mid 1990s when the catching up in terms of labour productivity also came to a halt once the average EU level reached the US level. In fact a new productivity gap opened up since 1995. Whereas average annual labour productivity growth in the US accelerated from 1.3% during the period 1980–1995 to 1.9% during 1995–2003, EU productivity growth declined from 2.3% to 1.3%.2 The striking acceleration in US output...
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