Recent trends and structural breaks in the US and EU15 labour productivity growth

Abstract

This article examines shifts in labour productivity growth in the US and in Europe between 1970 and 2007 based on econometric tests of structural breaks. Additionally, it makes use of time-series-based projections of labour productivity growth up to 2009 in order to detect breaks depending on confidence intervals of the projections. The identification of structural breaks in the US labour productivity growth is far from obvious. A statistically significant break is found in the late 1990s only if at least the 97.5th percentile of forecasts materializes in the future, which means that despite a clear pick up in productivity growth in the second half of the 1990s, the size of the hump is not large enough compared with past variations to make this change a statistically significant break. However, a significant break point is detected in the mid-1990s for the difference in labour productivity growth between the US and the EU15, even when controlling for the convergence of Europe towards the US productivity levels that has contributed to higher European performance in the early catch up phase. Finally, within Europe, the accumulation of Information and Communication Technology (ICT) capital seems to be related to differences in the shifts in structural labour productivity growth across countries.

The transatlantic productivity gap: Is R&D the main culprit?

“…In turn, R&D expenditures are the core investments originating ICT diffusion and innovation in general and—not surprisingly—have been demonstrated to play an important role in explaining the productivity differentials within the industrialized countries in the last decades (see Oliner and Sichel ; Gordon ; Stiroh ; Turner and Boulhol ; Wilson ). In particular, the role of private R&D investment by corporate firms (Business Enterprise Expenditure on R&D: BERD) has been recognized as a fundamental driver for productivity growth both at the macro and microeconomic level (see Baumol and Jones ).…”

IS CORPORATE R&D INVESTMENT IN HIGH‐TECH SECTORS MORE EFFECTIVE?

“…As of the 1990s, from a macroeconomic viewpoint the United States and the European Union have diverged in terms of both GDP and labor productivity growth rates (see Figures A1 and A2, respectively, in the ). In particular, what emerges clearly is that the historical process of the EU15's catching up to the higher United States levels of labor productivity stopped around the mid‐1990s (see O'Mahony and Van Ark, 2003; Blanchard, 2004; Turner and Boulhol, 2008).…”

International evidence of time-variation in trend labor productivity growth

“…Evidence for countries belonging to the European Union points towards a significant productivity slowdown since the early 1960s, as reported, e.g., by Turner & Boulhol (2011). Maybe surprisingly, no break dates are identified for the United States.…”

“…By comparing average productivity growth rates across countries and sub-samples, Gust & Marquez (2000) find that U.S. productivity growth had been lower than in the other G-7 member economies between 1980 and 1995, and higher afterward. Turner & Boulhol (2011) examine the difference in labor productivity growth between the United States and the EU15 countries between 1970 and 2007. Based on endogenous break tests, they report that developments in information technology likely caused shifts in labor productivity growth across countries.…”