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Tuesday, January 17, 2006

Comments

Edward Hugh

Most of the data about the US,Asia and eastern Europe and are relatively straightforward to interpret (although Japan is interesting). There is some kind of 'technological catching-up' going on. Also they are moving out of agricultural dominance, through industry and towards services, which again is a constnt productivity plus.

The Western European data is harder to interpret. This did stand out in the CB summary though:

"The U.S. and EU stand at two different points in their business cycle."....If Europe can stage an expected economic rebound, it might experience some acceleration in productivity growth."

This seems to be the big bet, that somehow the cycles are out of sync. But what if this isn't the case, and they are more or less harmonised (let's leave out the UK here, which is an outlier), and that trend growth in the Eurozone is just what we are seeing now? Maybe we are having the 'rebound'. That is my bet, and its perfectly explicable theoretically in terms of the growth and productivity slowdown with ageing populations (that's why Japan is interesting, since it *appears* to be bucking this trend, but we need to see more data, and more years). My guess is that as the US and China slow the eurozone will follow suit. Then it *may* become possible to have a rational discussion about just what exactly is going on.

India is also interesting:

"India's slower productivity growth (4.4% in 2004, and 4.1% on average from 2000-2004) should be seen in the perspective of faster employment growth at about 2% during recent years, which is double the growth of labor input in China. China experienced a similar phase of moderate productivity growth during the late 1980s and early 1990s."

This is again exactly what demographic dividend theory expects. There are two plusses to changing age structure, a compositional one (as the working age population becomes an increasingpart of the population as participation rates rise) and a behavioual one (as the core of the 'thickest generations' move up the age ranges they acquire more experience and productivity rises). We are seeing a dominance of the former effect in India now, and a domiance of the latter one in China.

Edward Hugh

"with France remaining the leader."

A number of things here are very important to keep in mind. There are three (or more) possible measures: gdp per hour, gdp per worker, and toatl factor productivity (ie including the capital share). Each of these has its uses, but non is definitive.

gdp per worker depends very much on participation rates, which in the end depend on age compostions and efficiency in the labour market. Germany, eg, does worse than the Uk on this on both counts, but France only on the labour market inefficiency one (since the age composition is broadly similar).

Where France is interesting is in that there are relatively low participation rates among younger and older workers. This means that most of the people working are what are called prime age workers, who by definition are the most productive. That is why per-worker productivity in France is so high (although, of course, this doesn't tell you whether capital is being used efficiently or not). Ironically labour market reforms in France would worsen productivity for the reason mentioned.

Now I am thinking about this, this could be part of the Japan explanation. As Dave Altig is noting in the US, participation artes are down due to lower participation among young people. Now.....

This can be produced by the interaction of two processes. Firstly the growing skill bias of wages can encourage young people to study more and get better qualifications, and secondly the preponderance of temporary contracts, fragility of employment, low rewards, can encourage (on the margin) more study, since working may be considered to be 'not worth the candle'. This pushes per hour productivity up.

It also delays home formation, and postpones first births, thus reducing fertility, but that is another question for another day........

Claus Vistesen

"Ironically labour market reforms in France would worsen productivity for the reason mentioned."

But hopefully French labour market reforms would do something about a structural unemployment rate of 10 %. I am particular talking about the mandatory financing of social security regimes today levied on employers and employees.

Jürï Saar

Any one have an idea, where I could find productivty data for new member of the European Union - EU 10?

Edward Hugh

"But hopefully French labour market reforms would do something about a structural unemployment rate of 10 %."

Oh of course, I am completely in favour of them, in particular becuase the exisiting set-up produces 'insiders' and 'outsiders', and some of the ousiders caught a lot of the headlines late last year. I was simply indicating that they won't necessarily have all the consequences which many expect.

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Oh of course, I am completely in favour of them, in particular becuase the exisiting set-up produces 'insiders' and 'outsiders', and some of the ousiders caught a lot of the headlines late last year. I was simply indicating that they won't necessarily have all the consequences which many expect.

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