Productivity and the Nordic model

Indulge me, dear reader, with yet another post on the Nordic economies. A recent ECB Occasional Paper No 39, by Anatoli Annenkov and Christophe Madaschi, examined Labour productivity in the Nordic EU countries: a comparative overview and explanatory factors 1980-2004 (PDF). They find that:

Since the mid-1990s, the Nordic EU countries, particularly Sweden and Finland, have experienced stronger labour productivity growth than the larger euro countries. Like in the US, innovation and technological changes have played a major role in explaining the higher labour productivity growth in the Nordic EU countries compared with the larger euro area economies.

Information and Communication Technology (ICT) diffusion is a key element to explain these differences. A number of institutional indicators, relating to market regulation, human capital, R&D investments and venture capital, show that the Nordic EU economies are better positioned than some of the larger euro area countries to exploit the opportunities provided by ICT in terms of productivity growth.

However, remaining labour market rigidities may not allow the Nordic EU countries to fully enjoy the benefits of ICT diffusion in terms of increased employment.

Innovation and technology are important. But can it be mere coincidence that the two Nordic economies that suffered a severe recession in the early 1990s - Finland and Sweden - also posted the strongest productivity growth since the mid-1990s? This surely reflects both the pro-cyclical nature of productivity measures (reflecting a strong post-recession rebound in growth), and the medium-term productivity boost from the structural reforms both countries underwent. I often find such points missing in the literature, which is a little too starry eyed about 'innovation'.

For more on productivity, a recent paper comissioned by the Nordic Council of Ministers also sheds light on the issue. Productivity Growth in the Nordic Countries found that:

..changes in the relative standard of living in the Nordic countries have been driven by parallel changes in relative productivity. The analysis also suggests that wages per employees have, in general, been higher in Denmark, Iceland, and mainland Norway than in Sweden, and that these higher wages do not, in fact, appear to be correlated with higher productivity.

And there was productivity convergence within the Nordic countries:

The analysis also provides strong support for so-called absolute β-convergence among the Nordic countries. Thus, initial differences between the countries, in terms of real output per employee, real output per hour, and real wage per employee, slowly fade away over time. This finding tells us that the Nordic countries are not that different when it comes to saving rates, levels of the technology, and government policies.

Comments

[Edward Hugh]

"Indulge me..."

Something about your useage grates with me here. Normally when used transitively this verb is used reflexively: indulge myself etc etc. (this is what we are doing by being here in the first place :) ).

So I was going to suggest 'bear with me', however...

looking in the dictionary I now see that there is a transitive useage which might fit: you can ask the Catholic Church to indulge you, in the sense of issuing you with an indulgence, and maybe, since you seem to be getting hooked on a protest version of social arrangements, you may have been right after all :).

[Edward Hugh]

"The analysis also provides strong support for so-called absolute β-convergence among the Nordic countries."

Btw, I suspect that this is a very important point, and one good reason why a common currency regime among these countries might well have worked.

[Tom Geraghty]

Do you know whether or not the OECD have similar data on labor market regulation to the product market information you posted on awhile back?

[New Economist]

Yes the OECD published new estimates of labour market regulation last year in Chapter 2 of the OECD Employment Outlook 2004. See in particular the appendix to that chapter for the detailed numbers.

[Alan]

The Nordic Countries "success story" economies are a joke. I've been living here last couple of years after being dragged here by my wife, and trying to run your business here is tough. It just isn't a business friendly place at all. taxes in Denmark are 60-odd% as soon as you have the cheek to earn more than £35,000 a year!

My guess is that 50-70% of the population are in government jobs, and they rely heavily on exports of oil, timber and fish in order to generate the foreign earnings to pay for it all.