The Role of Labor Market Changes in the Slowdown of European Productivity Growth

59 Pages Posted: 10 Mar 2008 Last revised: 27 Oct 2022

See all articles by Ian L. Dew-Becker

Ian L. Dew-Becker

Northwestern University - Department of Economics

Robert J. Gordon

Northwestern University - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Date Written: March 2008

Abstract

Throughout the postwar era until 1995 labor productivity grew faster in Europe than in the United States. Since 1995, productivity growth in the EU-15 has slowed while that in the United States has accelerated. But Europe's productivity growth slowdown was largely offset by faster growth in employment per capita, leaving little difference in growth of output per capita between the EU and US going back to 1980. This paper is about the strong negative tradeoff between productivity and employment growth within Europe. We document this tradeoff in the raw data, in regressions that control for the two-way causation between productivity and employment growth, and we show that there is a robust negative correlation between productivity and employment growth across countries and time. Our primary explanatory variables to explain both the revival of EU employment growth and the slowdown in productivity growth include six policy and institutional variables. We find that several of these variables have significant negative effects on employment per capita, both before and after 1995. We also find a significant time effect, that the increase in European employment per capita increased after 1995 for reasons that go beyond our six explanatory variables, and we link this time effect to a secular increase in the labor-force participation of women, particularly in southern European countries. We conclude by suggesting that evaluations of alternative policy reforms in Europe should take into account any offsetting effects on employment and productivity by examining the ultimate impact on changes in income per capita.

Suggested Citation

Dew-Becker, Ian L. and Gordon, Robert J., The Role of Labor Market Changes in the Slowdown of European Productivity Growth (March 2008). NBER Working Paper No. w13840, Available at SSRN: https://ssrn.com/abstract=1104177

Ian L. Dew-Becker (Contact Author)

Northwestern University - Department of Economics ( email )

2003 Sheridan Road
Evanston, IL 60208
United States

Robert J. Gordon

Northwestern University - Department of Economics ( email )

2003 Sheridan Road
Evanston, IL 60208
United States
847-491-3616 (Phone)
847-491-5427 (Fax)

HOME PAGE: http://faculty-web.at.northwestern.edu/economics/g

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
47
Abstract Views
842
PlumX Metrics