Capital and Labour (Mis)Allocation in the Euro Area: Some Stylized Facts and Determinants

57 Pages Posted: 3 Feb 2017  

Elisa Gamberoni

European Central Bank (ECB)

Claire Giordano

Bank of Italy

Paloma Lopez-Garcia

European Central Bank (ECB)

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Date Written: November 18, 2016

Abstract

We analyse the evolution of capital and labour (mis)allocation across firms in five euro-area countries (Belgium, France, Germany, Italy and Spain) and eight main sectors of the economy during the period 2002-2012. Three key stylized facts emerge. First, in all countries with the exception of Germany, capital allocation has worsened over time whereas the efficiency of labour reallocation has not changed significantly. Second, the observed increase in capital misallocation has been particularly severe in services as opposed to industry. Third, misallocation of both labour and capital dropped in all countries in 2009 and again for some country-sectors in 2011-2012. We next take stock of the possible drivers of input misallocation dynamics in a standard panel regression framework. Controlling for demand conditions and for the initial level of misallocation, heightened uncertainty, restrictive bank credit standards and tight product and labour market regulation are found to have boosted input misallocation, whereas the Great Recession per se exerted a cleansing effect.

Keywords: total factor productivity, allocative efficiency, capital, labour, Great Recession

JEL Classification: D24, D61, O47

Suggested Citation

Gamberoni, Elisa and Giordano, Claire and Lopez-Garcia, Paloma, Capital and Labour (Mis)Allocation in the Euro Area: Some Stylized Facts and Determinants (November 18, 2016). ECB Working Paper No. 1981. Available at SSRN: https://ssrn.com/abstract=2910947

Elisa Gamberoni (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Claire Giordano

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Paloma Lopez-Garcia

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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