Labor Productivity in Western Europe : An Intercountry, Interindustry Analysis

Transcription

1 abr Prductivity in Western Eurpe : An ntercuntry nterindustry Analysis Erik Dietzenbacher Alex R. Hen and Bart s University f Grningen Faculty f Ecnmics P.O. Bx 8 N-9 AV Grningen The Netherlands. University f Twente Faculty f Public Administratin and Public Plicy P.O. Bx 2 N-5 AE Enschede The Netherlands. Paper prepared fr the Twelfth nternatinal Cnference n nput-output Techniques 8-22 May 998 New Yrk. ntrductin The dynamics f prductivity differentials acrss cuntries have attracted a lt f attentin. D prductivity levels cnverge ver time r nt and why r why nt? The traditinal Slw-Swan mdel Slw 956 Swan 956 predicts that labr prductivity levels will definitely cnverge as technlgical pprtunities are assumed t be identical acrss cuntries and the law f diminishing returns t capital is assumed t apply. n the Slw-Swan mdel labr prductivity differences are therefre caused by temprary capital-labr rati differences nly. Mre recent theries hwever argue that wrldwide cnvergence is less likely. Examples that emphasize the rle f different levels f investment in physical capital as well as in knwledge and human capital can be fund in neclassically riented endgenus grwth thery ucas 988 Rmer 99 Grssman and Helpman 99 in evlutinary grwth thery Verspagen 99 and in Pst-Keynesian grwth thery Dixn and Thirlwall 95 Fagerberg 988. Empirical research n cnvergence has led t rather hetergeneus cnclusins mainly as a cnsequence f varying samples f cuntries. Well-knwn cntributins are thse by Bauml 986 Deng 988 Dwrick and Nguyen 989 and Barr and Sala-i-Martin 992 all f whm examined the issue f cnvergence using a regressin framewrk. nspired by develpment ecnmists wh argue that ecnmic develpment causes emplyment shifts frm lw-prductivity agriculture t high-prductivity manufacturing and services sme authrs have taken a disaggregated view at prductivity figures and calculated which part f aggregate prductivity changes culd be attributed t changes in the emplyment r utput cmpsitin e.g. Denisn 96 Maddisn 98 Jrgensn et al. 98 Dllar and Wlff 993 and Bernard and Jnes 996. n general they fund significant effects f what is ften called structural change.

2 The fact hwever that industries are interdependent bth within and between cuntries thrugh input-utput linkages seems t be largely verlked. The present paper aims at an extensin f the shift-share analyses by Dllar and Wlff 993 and Bernard and Jnes 996 explicitly taking int accunt these ecnmic interdependencies. Therefre it can be seen as an attempt t merge the cnvergence literature with the single-cuntry input-utput prductivity decmpsitins by Wlff Galatin 988 and Casler and Gallatin 99. Using tw full-fledged intercuntry input-utput tables fr six Western Eurpean cuntries fr 95 in 985 prices and 985 and emplyment data fr the same years we decmpse the aggregate labr prductivity grwth in six cnstituent parts. Tw f these are related t changes in labr prductivity levels fr each industry in each cuntry tw reflect changing industry utput shares acrss the six cuntries due t changing intermediate requirements and changing final demands and the remaining tw can be seen as the effects f changing trade relatinships between the six cuntries. 2 Cntrary t the bulk f input-utput related structural change decmpsitin analyses that apply an additive decmpsitin framewrk we develp a multiplicative decmpsitin analysis. 3 The methdlgy is discussed in the next sectin. Sectin 3 is devted t a descriptin f the data. n Sectins 4 and 5 we will present the decmpsitin results. The results fr the labr prductivity change in the entire Eur-6 ecnmy cuntry-specific effects and industry-specific effects are given in Sectin 4. A vertically integrated industry viewpint is adpted in Sectin 5 in rder t see hw changes in the input and trade structure have affected the rati between the value added and the ttal labr as required t prduce ne unit f final demand. Further the effects f structural change n cnvergence amng cmparable vertically integrated industries in each f the cuntries will be studied by means f regressin analysis. The final sectin cntains a brief summary and cnclusins. 2. Methdlgy n rder t split changes in aggregate labr prductivity int its determinants we apply a multiplicative decmpsitin framewrk. We use the fllwing definitins in which N represents the number f industries per cuntry and C the number f cuntries: 2 3 The cuntries are Belgium Denmark France Germany taly and The Netherlands. Nte that we d nt investigate which factrs affect an industry s labr prductivity. This implies that we d nt investigate the ways in which an industry s labr prductivity level is affected by technlgical prgress in ther industries. Fr a study int the prductivity effects f interindustry technlgy spillvers see s and Verspagen 99. Verspagen 99 als cnsiders prductivity effects f internatinal spillvers. s 99 ffers a survey f interindustry technlgy spillver measures. Classic cntributins in the field f additive structural change decmpsitins are Chenery et al. 962 Carter 9 Wlff 985 Feldman et al. 98 and Sklka 989. An extensive survey is presented by Rse and Casler

3 v: aggregate value added scalar; l: aggregate labr inputs scalar; π: aggregate labr prductivity vl scalar; UV A: matrix with input cefficients NCxNC matrix with typical element D denting M the input f prduct i frm cuntry r per unit f utput in industry j in cuntry s; : entief-inverse NCxNC matrix -A - ; F: matrix f final demands fr each cuntry f destinatin NCxC+ matrix. The UV typical element dentes the final demand fr prduct i prduced in cuntry r by cuntry s. s = C C+ where C+ dentes the aggregate f nn-eur 6 cuntries; U f: vectr with elements giving the final demand fr utput f industry i in cuntry r NCx vectr. Nte that f = Fe where e is the C+x summatin vectr cnsisting f nes; λ: vectr with elements λ U giving the use f labr per unit f grss utput in industry i in cuntry r NCx vectr; U µ: vectr with elements µ the value added per unit f grss utput in industry i NCx vectr; Using Y = µ and O = λ primes indicating transpsed vectrs and matrices we can write λ λ = and λ = λ λ λ λ λ in which indices are time indicatrs. Fr aggregate labr prductivity change this yields π π Y O µ λ = = Y O µ λ µ µ λ λ µ µ λ λ where the first factr reflects prductivity effects f changes in the value added cefficients the secnd factr indicates the effects f changes in the direct labr requirements the third factr describes the effects f changes in the prductin structure and the last factr gives the effects f changes in the final demands. 4 The 4 Nte that Wlff 994 recmmends grss utput divided by emplyment as the measure fr labr prductivity partly because the change in µ j equals the change in Σ i a ij. Hence changes in value added per unit f labr are cntaminated by changes in the intermediate input cefficients. n ur pinin hwever value added is a much better measure fr utput than grss utput because it directly relates t the cntributin f an industry t the ecnmy s incme. n additin ur database recrds imprts frm nn-included EC cuntries and nn-ec cuntries as primary cst categries. Therefre changes in Σ i a ij d 3

4 last tw factrs can be decmpsed further in rder t incrprate the distinctin between effects f aggregate prductin structure changes and aggregate final demand changes n the ne hand and effects f changing internatinal trade with respect t bth intermediate inputs and final demand deliveries n the ther. Using A: T A : F: T F : matrix cnstructed by stacking C identical NxNC matrices f aggregate intermediate inputs per unit f grss utput by industry by cuntry NCxNC UV & UV matrix r: [ D ] = Σ D M U= ; M matrix f intermediate trade cefficients representing the shares f each cuntry in aggregate inputs by input by industry by cuntry NCxNC matrix. UV UV UV UV [ W ] = D [ D ] nte that Σ [ W ] = ; M M M U M matrix cnstructed by stacking C identical NxC+ matrices f final demand UV & UV fr prduct i by cuntry s NCxC+ matrix r: [ ] = Σ U= ; matrix f final demand trade cefficients representing the shares f cuntry r in aggregate final demand fr prduct i in cuntry s NCxC+ matrix. UV UV UV [ W ] = [ ] nte that Σ [ W UV ] = ; U = and = H denting the Hadamard prduct f elementwise multiplicatin. 5 Our final and fr the identity matrix we can write decmpsitin f aggregate labr prductivity change can thus be written as π = with 2 π µ 2. = µ λ 2.2 = λ µ [ µ [ ] λ [ λ [ = ] ] µ [ µ [ ] λ [ λ [ = ] ] µ 2.5 = µ µ 2.6 = µ H λ H λ H λ H λ ] ] H H and H H. Nw 2. represents the prductivity effects f changes in the value added figures per unit f grss utput by industry 2.2 measures the effects f changed labr 5 nt necessarily imply a change in µ j. This hlds in particular in the case f imprt substitutin. See Osterhaven et al. 995 and Osterhaven and Van der inden 99 fr a similar methdlgy cncerning decmpsitins f value added grwth. 4

5 5 requirements per unit f grss utput by industry 2.3 indicates the effects f changes in the interindustry structure due t e.g. technlgical change factr substitutin and changing utput cmpsitins within industries 2.4 reflects prductivity effects f changed trade structures with respect t cmmdities and services used as intermediate inputs 2.5 represents the effects f final demand cmpsitin changes due t e.g. substitutin by cnsumers investrs r third cuntries fllwing relative price changes r changing preference structures and finally 2.6 measures the aggregate labr prductivity effects f changes in the trade structure as regards cmmdities and services used fr final demand purpses. As is well-knwn structural change decmpsitins are nt unique. Dietzenbacher and s shw that the sensitivity f additive decmpsitin results acrss different frmulae may be very large. Therefre we als reprt results btained by a secnd decmpsitin in which the weights are reversed cmpared t equatin 2: = π π with 3 = 3. µ µ = 3.2 λ λ = ] [ ] [ ] [ ] [ 3.3 λ λ µ µ = ] [ ] [ ] [ ] [ 3.4 λ λ µ µ = H H H H 3.5 λ λ µ µ and = H H H H 3.6 λ λ µ µ. Dietzenbacher and s 998 find that the results fr the average f these tw types f decmpsitins are generally very clse t the average f all pssible decmpsitin frms at least in the additive case. The variance f the results hwever is generally much smaller when the tw types f frms as in equatins 2 and 3 are taken int accunt then when all pssible frms are used. Equatins 2 and 3 prvide estimates f the varius partial effects n labr prductivity grwth fr the entire Eur-6 ecnmy aggregated ver cuntries as well as ver industries. n rder t btain estimates fr single cuntries aggregated ver industries and single industries aggregated ver cuntries we replaced the vectrs λ and µ in equatins 2 and 3 by diagnal matrices with the same elements n the main diagnal and zers elsewhere and pre-multiplied all

6 numeratrs and denminatrs with xnc aggregatin vectrs ne fr each cuntry r industry. 3. Data Descriptin Our decmpsitins are implemented using data frm Eurstat. The intercuntry input-utput tables fr 95 and 985 were cnstructed at the University f Grningen n the basis f Eurstat harmnized natinal input-utput tables see Eurstat 99 and frm harmnized internatinal trade data Eurstat The 95 table has been cnstructed using 985 prices in ecus. The cnversin f values in natinal currencies int cmmn ecu values was dne using fficial exchange rates. This implies that we can nt distinguish between real relative utput fluctuatins and utput fluctuatins because f exchange rate mvements see Maddisn and Van Ark 989 fr a survey f PPP-measurement methds at the industry level that attempt t circumvent this difficulty. The tables cntain all trade flws measured within and between six Western Eurpean ecnmies Belgium Denmark France Germany taly and The Netherlands disaggregated int 25 industries. Because f incmplete emplyment data see belw we had t merge three industries int ne: inland transprtatin services maritime transprtatin services and auxiliary transprtatin services int transprtatin services. Final demand deliveries cnsist f husehld cnsumptin gvernment cnsumptin capital stck frmatin and inventry stck changes t each f the Eur-6 cuntries as well as exprts t nn-included EC cuntries and exprts t third cuntries. n the present analysis we d nt fcus n differences between final demand categries but n the cuntries f destinatin nly. Hence we lumped tgether the first fur categries fr each f the cuntries f destinatins and added exprts t bth categries f nn-eur-6 cuntries int ne grup. Finally ur measure f value added is grss value added at market prices. Other primary input categries like imprts frm nn-included EC cuntries are nt required fr ur analysis. Hence each input-utput table cnsists f a 6x23x6x23 intermediate deliveries part as well as a 6x23x final demand matrix and a x6x23 value added vectr. With regard t the cnstructin f the trade cefficient matrices T A we ften encuntered the prblem that the use f an industry s utput summed ver all & UV cuntries-f-rigin by an industry is zer that is Σ = D =. n that case trade U M cefficients culd nt be derived in a sensible way. Whenever this happened fr bth years the trade cefficient culd be assigned an arbitrary but cnstant acrss years 6 Details n the cnstructin can be fund in Van der inden and Osterhaven 995 and Hen 998 earlier analyses making avail f these tables are Dietzenbacher et al. 993 Osterhaven et al. 995 Dietzenbacher 99 Dietzenbacher and Van der inden 99 and Osterhaven and Van der inden 99. 6

7 value which was chsen t be. Hwever in cases where the ttal use was zer in ne year but psitive in the ther it was necessary t replace the indefinable trade cefficients in the first year by sme nnnegative value the chice f which is likely t affect the results. n thse cases we decided t assign this cefficient the same value as the crrespnding trade cefficient fr the ther year which implies that if all ther values wuld have remained equal all labr prductivity effects wuld be ascribed t changes in the input structure and nne t changes in the trade structure. n rder t cmpute labr prductivity levels value added per unit f labr input by industry we divided the value added elements frm the intercuntry Otables by the crrespnding ttal emplyment figures in Eurstat 986 and Eurstat 99 fr 95 and 985 respectively. As is well-knwn labr prductivity levels are best measured when the labr input indicatr reflects changes in wrking hurs. Unfrtunately data n man years were available fr The Netherlands nly s we had t use the ttal number f jbs. When interpreting the results the dwnward bias fr prductivities in 985 cmpared t thse fr 95 due t decreasing wrking hurs per jb in many industries and cuntries shuld be brne in mind. T btain a cmmn labr input indicatr fr all cuntries we had t adapt the man year figures fr The Netherlands. Assuming that emplyers had full-time jbs we used ratis calculated frm tables g and q jbs per industry and 4g and 4q man years per industry in Statistics Netherlands 996 t crrect fr years wrked by part-time and seasnal emplyees. 8 Especially in services industries the number f jbs appears t deviate strngly frm the number f man years. Finally in rder t keep the level f aggregatin as lw as pssible we had t divide labr input ttals fr tw grups f industries fr Belgium 95 and The Netherlands 95 amng their cnstituent individual industries accrding t their labr input cmpsitins fr 98 dcumented in Eurstat 988. n Tables and 2 sme summary statistics n labr prductivity are presented. Table fcuses n industry figures Table 2 n cuntry characteristics. Table nt nly shws that labr prductivity levels were very different fr industries but als that big differences existed between cuntries within an industry. Eur-6 industries with a relatively high labr prductivity are fuel and pwer prducts 2 and t a lesser extent chemical prducts 5 and ther market services 22. The highest standard deviatins are fund fr fuel and pwer prducts althugh Denmark s apparent catch-up in this industry reduced the dispersin significantly. n general labr prductivity levels within the 8 Emplyment figures fr a given industry in a given cuntry in a given year ften appear t vary acrss annual Eurstat publicatins. We used the mst recent versins except fr taly and The Netherlands in 985. Data fr The Netherlands and taly were taken frm Eurstat 989 partly because this publicatin presents these data at a mre apprpriate level f aggregatin than Eurstat 99. The industry classificatin in Statistics Netherlands 996 is different frm Eurstat s NACE. Fr many industries reclassificatin was straightfrward but fr sme ntably fuel and pwer prducts ther manufacturing cmmunicatin services ther market services and nn-market services the crrectin rati may be relatively inexact.

8 Table 8

9 Eur-6 cnverged: standard deviatins decreased in 4 ut f 23 industries cefficients f variatin even in 9 industries. Mrever the decreases were generally larger in size than the increases. With respect t the exceptins t the general cnvergence the increased standard deviatins in agricultural frestry and fishery prducts and in ffice and data prcessing machines precisin and ptical instruments 8 are remarkable especially when they are related t the lw r mderate average levels in these industries. The rightmst clumns fr bth years shw that there shuld be sme rm fr labr prductivity grwth thrugh increased internatinal specializatin as in mre than 5% f the industries the share f natinal emplyment turns ut t be higher in the cuntry with the lwest prductivity than in the cuntry with the highest. This hlds in particular fr tradable gds like manufacturing prducts where ne wuld expect a mre prnunced specializatin pattern in Western Eurpe. 9 Apparently labr prductivity is nt the main determinant fr market share dynamics. t shuld be nted hwever that industries and cuntries that appear in the maximum clumns shuld nt autmatically be interpreted as being the technlgically mst advanced as labr prductivities are als affected by capitallabr ratis that partly depend n bth industry- and cuntry-specific relative factr prices. An analysis f ttal factr prductivities TFP purely reflecting technlgical differences wuld prbably prvide additinal insights but is nt undertaken here due t a lack f reliable capital stck data. Table 2 presents summary statistics fr the six cuntries under cnsideratin aggregated ver industries. The cuntries are rdered accrding t their aggregate labr prductivity levels in 95. The figures in Table 2 als indicate that prductivity cnvergence has ccurred: the rates f prductivity grwth in the lw prductivity cuntries Belgium and taly were higher than in the ther cuntries. France has vertaken The Netherlands the same hlds fr Belgium vs. Denmark. 9 The very lw values fr labr prductivity in Dutch ther market services 22 is remarkable. This is prbably due t the Eurstat data n labr inputs. We d nt think this will influence ur analysis t much as we investigate grwth rates nt levels in ur decmpsitin analyses. Cntrary t labr prductivity the derivatin f ideal TFP indices is nt unambiguus as it requires assumptins n the degree f substitutability f capital and labr and als depends n ne s view n capital as a prduced input see Wlff

10 Table 2: abr prductivity levels in s f ecus per wrker and grwth rates by cuntry %grwth GER NTH FRA DEN BE TA Eur S far we have mstly taken a static viewpint with respect t industry prductivity. Figure ffers insight int labr prductivity grwth rates between 95 and 985 fr each f the 23 industries in each cuntry. Mst industries experienced -year grwth rates between % and % crrespnding t ratis between. and 2. but there are sme imprtant exceptins. taly s high aggregate prductivity grwth rate fr example appears t be caused mainly by strng prductivity increases in a few manufacturing industries chemical prducts 5 ffice machines and instruments 8 and electrical gds 9. Fig.: abr Prductivity Ratis by ndustry Rati Germany France taly The Netherlands Belgium Denmark ndustry classificatin number Fr Belgium manufacturing industries als seem t be the mst imprtant surces f the prductivity catch-up chemical prducts 5 and rubber and plastic prducts 4 althugh the credit and insurance services industry 2 als increased its prductivity with mre than %. France n the cntrary seems t we its aggregate prductivity increase mainly t a cuple f services industries. t shuld be mentined that this is nt in line with the results f Maddisn s 98 table A6 detailed study and might be caused by ur use f exchange rate-based value added data. Maddisn reprts annual average cmpund prductivity grwth rates fr services industries f. France. Germany and.2 The Netherlands and much higher

11 With the exceptin f ldging and catering services 8 and ther market services 22 The Netherlands appear t be n the bttm side fr mst industries. German industries d nt shw much variatin while mst Danish industries seem t have perfrmed just belw average. The issue f cnvergence can als be dealt with at the industry level. We estimated a simple linear equatin that links the ten-year labr prductivity grwth rates by industry by cuntry the ratis depicted in Fig. minus ne gr t the lgarithms f the crrespnding 95 labr prductivity levels linit as well as industry dummies t crrect fr interindustry level effects. We carried ut the analysis fr three samples f industries: the ttal sample n = 38 a sample f manufacturing industries classificatin cdes 3 t 5 n = 8 and a sample f services industries classificatin cdes t 23 n = 42. Nt reprting the estimates fr the industry dummy cefficients that turned ut t be insignificant fr the large majrity f industries the results are t-values between brackets: Ttal sample: JU = OQW 5 2 =. 58; Manufacturing sample: JU = OQW 5 2 =. ; Services sample: JU = 3.3.2OQW 5 2 =.46; The significantly negative estimates fr the initial prductivity cefficient clearly shw that labr prductivity cnvergence ccurred between 95 and 985 in the Eur-6 industries. 2 Cnvergence was relatively strng within manufacturing cmpared t the rest f the industries. The general picture sketched in this sectin is that labr prductivity changes have varied within rather brad ranges acrss cuntries as well as acrss industries. Until nw hwever we have nly briefly tuched upn the effects that are the main fcus f this study aggregate labr prductivity changes that are due t shifts f prductin between different cuntries and different industries. The remainder f this paper is devted t the decmpsitin analyses that give mre insight int the magnitude f these effects. 4. Decmpsitin Results The results f the applicatin f decmpsitin equatins 2 and 3 are dcumented in Tables 3 and 4. n Table 3 the fcus is n the effects f the distinguished factrs n 2 prductivity grwth rates fr French agriculture and manufacturing. His perid f analysis is cmparable t urs F-tests led t rejectin f the hypthesis that bth the intercept and the cnvergence cefficient are zer at the % significance level.

12 labr prductivity levels fr the six cuntries aggregated ver industries Table 4 emphasizes the effects n prductivity levels fr the 23 industries aggregated ver cuntries. Table 3: abr prductivity decmpsitin results by cuntry Cuntry Ttal a Factr b Factr 2 Factr 3 Factr 4 Factr 5 Factr 6 GER FRA TA NTH BE DEN Eur a Rati f labr prductivity in 985 t labr prductivity in 95. b eft clumns refer t results f Eq. 2 right clumns t results f Eq. 3 The last line f Table 3 shws that the labr prductivity increase f 24.5% in the Eur- 6 ecnmy already presented in Table 2 is almst exclusively caused by tw f ur six factrs: the decreased labr input per unit f grss utput wuld have increased prductivity by abut 33% if n ther factr had changed an effect that is partly ffset by a prductivity-decreasing effect f a smaller share f value added in ttal inputs abut -5%. The remaining fur factrs seem t have had a negligible influence althugh bth factr 3 changing input structures and factr 5 changing final demand cmpsitins with respect t cmmdities may have had weak negative effects n prductivity in the aggregate Eur-6 ecnmy. Furthermre it shuld be nted that these results are fund using either f bth plar decmpsitins: differences are small. The results are rughly similar fr each f the cuntries except fr The Netherlands. Fr this cuntry we find a much strnger psitive effect f decreasing labr inputs factr 2 which did nt yield an extrardinary prductivity increase because every factr except factr 4 seems t have had a cmpensating negative effect. n particular the changing final demand cmpsitins with respect t cmmdities factr 5 seem t have resulted int a shift away frm highprductivity activities in The Netherlands accunting fr abut 4% prductivity decrease. The mst interesting results in Table 3 fr ther cuntries are the relatively strng negative effect abut 8.5% f decreasing value added per unit f grss utput factr in Germany and the belw-average psitive effect f decreasing labr inputs in Denmark nly 2%. Further nly three cuntries taly the Netherlands and t a lesser extent France appear t be respnsible fr the weak negative effect f factr 3 fr the Eur-6 ecnmy the ther cuntries being unaffected by changes in input structures r even experiencing a slightly prductivity-increasing effect Denmark. Belgium and Denmark resembled The Netherlands in the sense that factr 5 had a significant negative impact n prductivity althugh the size f this effect was nly abut % in Belgium and abut 2% in Denmark. 2

13 n ur pinin the rather general validity f the Eur-6 ecnmy results fr individual cuntries is nt very surprising as the cuntries have rughly gne thrugh the same stages f develpment and were all very stable in an institutinal and plitical sense. t wuld have been very interesting t extend the present analysis t say 995 in rder t see hw the reunificatin f Germany with significantly lwer prductivity levels in the frmer GDR had affected the results but unfrtunately Eurstat decided t stp the cnstructin f harmnized inpututput tables after 985. The results fr separate Eur-6 industries presented in Table 4 shw much mre variability than the results by cuntry due the diversity f industries. This diversity is clearly reflected in the first clumn shwing that labr prductivity increased between 95 and 985 by as much as 85% in cmmunicatin services industry 2 but even slightly decreased in services f credit and insurance institutins industry 2. Again the bulk f prductivity increases is caused by factr 2 decreasing labr inputs per unit f grss utput. Fr the majrity f industries this effect appears t be larger than the ttal grwth which implies that the ttals f the ther five effects are ften smaller than ne. Table 4: abr prductivity decmpsitin results by industry. ndustry Ttal a Factr b Factr 2 Factr 3 Factr 4 Factr 5 Factr 6 AGR FUE ORME MNE CHEM METP MACH OFFM EEC TREQ

14 The cmplex dynamics f factr substitutin and technlgical prgress summarized in factr 3 have had significant effects nly in fuel and pwer prducts -2.5% metal prducts -.8% services f credit and insurance 4

15 Secnd it is a well-knwn fact that quality differences are seldm fully reflected in prices. Deflatin prcedures may yield relatively lw prductivity measures fr industries that prduce high-quality varieties f a gd. 3 Keeping this in mind it wuld nt be that strange if an industry with a lw prductivity level r a lw prductivity grwth rate cmpared t its freign cmpetitrs wuld nt lse market share. A third ptential cause related t the interindustry nature f final demand gd prductin is investigated in the next sectin. 5. Prductivity Analysis f Vertically ntegrated ndustries abr prductivity changes in an individual industry can be due t a number f real prductivity factrs f which capital deepening and technlgical prgress are the best recgnized nes but can als be caused by a changing underlying activity structure. A well-knwn example is the cntracting ut f accunting andr cleaning activities by manufacturing firms t specialized firms: n the aggregate the same wrk may be dne by an identical amunt f emplyees but the prductivity figures f the manufacturing firm are likely t change. We can get rid f these effects by taking a different perspective in which the rati between value added and labr needed in the prductin f ne unit f final demand utput is the main variable. The alternative apprach des nt cnsider industries in the usual sense but investigates vertically integrated industries Pasinetti 93 that cnsist f all industries that directly r indirectly cntribute t the prductin f a final demand cmmdity weighted by their respective cntributins. 4 Such an apprach might indicate a ptential slutin t the previus sectin s smewhat paradxical result that final demand fr tradable gds did nt shift twards cuntries in which levels and grwth rates f labr prductivity in the industries cncerned were relatively high. A hypthetical example might clarify the claim fr a ptential slutin. Suppse a situatin in which labr prductivity in the fd beverages and tbacc industry in cuntry A is decreasing and prductivity in its main supplier industry agricultural frestry and fishery prducts in the same cuntry is increasing while labr prductivity levels fr these industries are cnstant in the ther cuntries. Then an increasing share f cuntry A in final demand fr fd etc. might seem strange at first sight if ne assumes that lw labr prductivity 3 4 n fact cnventinal price deflatrs shift prductivity increases frm the qualityincreasing industry t the industries buying its prduct. Fr example it may well be that part f the 85% labr prductivity increase in cmmunicatin services is due t prductivity increases that shuld actually be accunted fr in ffice and data prcessing machinery in the same r a secnd cuntry see e.g. s 99 fr a discussin f these s-called rent spillvers. n this paper hwever we fcus n cnventinally measured prices and prductivity levels. S accunting and cleaning activities always turn up in the prductivity f the vertically integrated industry that prduces a certain manufactured gd n matter whether these activities are cntracted ut r nt. 5

16 levels are reflected in high prices wage rate differences fr instance might disturb such relatinships. n fact hwever labr is nt the nly input the use f which may be reflected in utput prices: next t fixed capital gds intermediate inputs are ften required. Bearing this in mind the relatively lw price paid fr agricultural prducts etc. might allw cuntry A t set the price fr its fd etc. equal t r belw that f freign cmpetitrs depending n the shares f agricultural prducts etc. in ttal inputs. Extending this reasning labr prductivity changes in any f the upstream industries might well affect the final demand market shares f a cuntry fr a given utput. The cncept f vertically integrated industries accunts fr this ntin. Hence labr prductivity changes in vertically integrated industries are the central issue in this sectin. Analgus t ur earlier investigatins in labr prductivity by industry we define labr prductivity in vertically integrated industry i as the rati f value added created in vertically integrated industry i and the number f jbs in vertically integrated industry i. n matrix ntatin maintaining the symbls intrduced in Sectin 2 the labr prductivity f vertically integrated industry i can be expressed as ˆ ˆ 3 π = µ' H λ' H 5 a hat denting the diagnalizatin f a vectr and e i representing an NCx vectr f zers and a ne fr element i. t shuld be nted that this apprach des nt take int accunt Pasinetti s ntin that capital gds used in varius phases f the prductin f a final demand cmmdity shuld als be included in the vertically integrated industry. The lack f matrices with interindustry capital gds flws prevents us frm such an apprach which admittedly wuld be preferable frm a theretical perspective. Fig. 2: abr Prductivity Ratis by Vertically ntegrated ndustry Rati ndustry classificatin number Germany France taly The Netherlands Belgium Denmark 6

17 Figure 2 presents an verview f labr prductivity develpments in all 23 vertically integrated industries each representing ne final demand utput fr each f the six cuntries. 5 n general the results are similar t thse pltted in Fig.. The magnitudes f the ratis hwever are far less dispersed which des nt cme as a surprise as all ratis can be interpreted as weighted averages f thse pltted in Fig.. The Netherlands did nt perfrm well cmpared t ther cuntries except fr the vertically integrated industries 8 final demand f ldging and catering services and 22 final demand f ther market services. France did well in several final demand services but in a vertically integrated industry cntext the main French winner is nt final demand f credit and insurance services 2 but final demand f cmmunicatin services 2. taly is again strng in final demand f varius manufactured cmmdities. Further Belgian vertically integrated industries 5 final demand f chemical prducts and 4 final demand f rubber and plastic prducts managed t attain high scres the latter nt nly because the Belgian rubber and plastic industry itself shws a high prductivity grwth but als because a large share f ttal inputs was supplied by the Belgian chemical industry with an extremely strng prductivity grwth see Fig.. ike fr industries in the mre usual sense we carried ut sme regressins t see whether cnvergence at the level f vertically integrated industries ccurred between 95 and 985. abr prductivity increases grp were again linked t the lgarithms f prductivity levels in 95 linitp and a series f industry dummies. The regressins were run fr the ttal sample the sample f vertically integrated industries prducing manufacturing gds and the sample f vertically integrated industries prducing services. Ttal sample: JUS = OQWS 5 2 =. 4; Manufacturing sample: JUS =.83.26OQWS 5 2 =. 43; Services sample: JUS =.49.33OQWS 5 2 =.34; Again the null hypthesis f zer cnvergence is rejected at usual levels f significance. 6 Nevertheless the differences with the regressin results btained fr industries in the usual sense are clear. First the estimated cnvergence rates are 5 6 Nte that ur intercuntry framewrk implies that labr prductivity grwth fr vertically integrated industries in a given cuntry may als be affected by labr prductivity changes in ne r mre f the ther cuntries included in the analysis. With respect t the ttal sample as well as the manufacturing sample nt nly t-values lead t rejectin. F-tests n the simultaneus significance f the cnstant and the cnvergence cefficient yield values that crrespnd t p-values well belw. and.25 respectively. Fr services the null f a zer cnstant and a zer cnvergence cefficient culd nly be rejected at a % significance level s cnvergence may be absent within this subsample.

18 much lwer.2 t.3 versus. t.4 which is likely t be a cnsequence f a less prnunced variability f initial prductivity levels acrss vertically integrated industries. Secnd the cefficients f determinatin are lwer fr the case f vertically integrated industries. This difference is especially marked fr the manufacturing sample:.43 versus.. The labr prductivity ratis by vertically integrated industry pltted in Figure 2 can be decmpsed int the first fur factrs f equatins 2 and 3. The last tw factrs d nt play a rle as final demand changes have n impact n labr prductivity levels f individual vertically integrated industries s we replaced the final demand vectrs in equatins 2 and 3 by vectrs cnsisting f zers except fr a ne fr the element crrespnding t the vertically integrated industry under investigatin e i. Fr reasns f space we restrict ur dcumentatin f results t tw diagrams that ffer insight int the effects that are central t ur analysis: the effects f input structure changes and thse f trade structure changes. 8

19 precisin instruments 8 and final demand fd and beverages are the exceptins. 5 Fig. 4: Trade Structure Effect Ratis by Vertically ntegrated ndustry Rati ndustry classificatin number Germany France taly The Netherlands Belgium Denmark Finally we investigated whether structural change effects that mstly appeared small frm Figs. 3 and 4 affected the cnvergence prcess. T that end we estimated equatins in which the dependent variable is the labr prductivity grwth rate that vertically integrated industries wuld have experienced if bth input structures and trade structures with respect t intermediate inputs had nt changed grp. The right-hand side f the estimated equatins is identical t the ne in equatins 6 including the nn-reprted dummy cefficients. Ttal sample: JUS =.623.4OQWS 5 2 = Manufacturing sample: JUS =.4.64OQWS 5 2 = Services sample: JUS =.3.23OQWS 5 2 = When the estimatin results in equatins are cmpared with thse in equatins 6 sme imprtant differences are fund. Fr the ttal sample the estimated cnvergence cefficient is much lwer.4 versus.228. The weaker cnvergence is als reflected in the t-value and especially the F-statistic n the cnstant and the cnvergence cefficient: withut structural change the null hypthesis f zer cnvergence can nt be rejected at the % significance level at 2.5% it can. Fr bth subsamples these tendencies are even mre visible: n the basis f similar F-tests cnvergence can nly be assessed at significance levels well ver 5%. Apparently the relatively small structural effects depicted in Figs. 3 and 4 had tgether a cnvergence-enhancing effect with respect t labr prductivity levels in vertically integrated industries. 9

20 All in all the analysis f labr prductivity frm a vertically integrated industry viewpint des nt alter ur previus cnclusin that neither input structure changes nr trade structure changes significantly cntributed t the grwth f labr prductivity in the Eur-6 ecnmy. Cnvergence f prductivity levels hwever was enhanced by these structural effects. 6. Summary and Cnclusins The applicatin f a new aggregate labr prductivity grwth decmpsitin framewrk n tw full intercuntry input-utput tables in cnstant prices fr six Western Eurpean cuntries has shwn that prductivity effects f input structure changes and f trade structure effects are rather small cmpared t thse f grwing labr prductivity levels in individual industries. Althugh cnvergence in vertically integrated industries was enhanced by structural change mst f the relatively few significant structure effects n grwth are even negative which implies that labr prductivity grwth wuld have been higher if n structure changes had ccurred at least if ne is willing t maintain the assumptin cmmn t grwth accunting and structural change decmpsitin studies that the cnstituent parts f aggregate grwth are independent. This is smewhat surprising as ur summary statistics n prductivity levels indicate that aggregate Eur-6 prductivity allws fr a significant grwth by a mere increase in internatinal specializatin. A number f ptential explanatins fr this result can be frmulated. The prbably mst imprtant f them was argued t be the imperfect reflectin f prductivity differentials in prices. We mentin fur additinal candidates that might explain the results abve the first tw being related t ur methdlgy and the latter tw dealing with the time perid and ecnmies we investigated. First ur input-utput tables were cnstructed using exchange rate-cnversins f values in natinal currencies instead f mre apprpriate PPP-cnversins. Secnd we were nt able t decmpse grwth rate differences between tw perids f time as we had nly tw input-utput tables available. Wlff 985 prvides sme evidence that structural change effects at least within a cuntry are mre imprtant in that kind f decmpsitins. Third ur perid under investigatin years may nt be lng enugh t find significant psitive effects fr example because structures d nt adapt very quickly t changing technlgical r ecnmic changes. Finally ur sample f cuntries may nt be hetergeneus enugh despite the reprted prductivity differences t cause imprtant shifts f labr resurces acrss industries bearing in mind that transactin csts as well as transprtatin csts must be cmpensated fr by price differentials befre a firm might be tempted t buy its inputs abrad. Fllwing the argument f a lack f hetergeneity in ur sample we think that it wuld be a prmising avenue f research t apply ur decmpsitin frmulae t a 2

21 set f intercuntry input-utput tables fr e.g. the U.S. r even their individual states and Mexic t see hw input structure and trade structure changes fllwing NAFTA affected labr prductivity in bth cuntries r their states. Anther interesting case might emerge if frmer Eastern Blck cuntries enter the Eurpean Unin. The cnstructin f the required tables wuld nt be withut difficulties hwever in particular if ne wuld try t use mre apprpriate currency cnverters. Nevertheless we think that studies like the present ne cntribute t the merits f such tables. References Barr R.J. and X. Sala-i-Martin 992 Cnvergence Jurnal f Plitical Ecnmy vl. pp Bauml W.J. 986 Prductivity Grwth Cnvergence and Welfare: What the ng Run Data Shw American Ecnmic Review vl. 6 pp Bernard A.W. and C.. Jnes 996 Prductivity acrss ndustries and Cuntries: Time Series Thery and Evidence Review f Ecnmics and Statistics vl. 8 pp Carter A.P. 9 Structural Change in the American Ecnmy Harvard University Press Cambridge MA. Casler S.D. and M.S. Gallatin 99 Sectral Cntributins t Ttal Factr Prductivity: Anther Perspective n the Grwth Slwdwn Jurnal f Macrecnmics vl. 9 pp Chenery H.B. S. Shishid and T. Watanabe 962 The Pattern f Japanese Grwth Ecnmetrica vl. 3 pp De ng D.B. 988 Prductivity Grwth Cnvergence and Welfare: Cmment American Ecnmic Review vl. 8 pp Denisn E.F. 96 Why Grwth Rates Differ Brkings nstitutin Washingtn DC. Dietzenbacher E. 99 An ntercuntry Decmpsitin f Output Grwth in EC Cuntries paper presented at the 44th Nrth-American Meeting f the Reginal Science Assciatin Nvember 6-9 Buffal NY. Dietzenbacher E. J.A. Van der inden and A.E. Steenge 993 The Reginal Extractin Methd: Applicatins t the Eurpean Cmmunity Ecnmic Systems Research vl. 5 pp Dietzenbacher E. and J.A. Van der inden 99 Sectral and Spatial inkages in the EC Prductin Structure Jurnal f Reginal Science vl. 3 pp Dietzenbacher E. and B. s 99 Analyzing Decmpsitin Analyses in: A. Simnvits and A.E. Steenge eds. Prices Grwth and Cycles Macmillan ndn pp Dietzenbacher E. and B. s 998 Structural Decmpsitin Techniques: Sense and Sensitivity Ecnmic Systems Research vl. frthcming. 2

22 Dixn R.J. and A.P. Thirlwall 95 A Mdel f Reginal Grwth Rate Differences n Kaldrian ines Oxfrd Ecnmic Papers vl. pp Dllar D. and E.N. Wlff 993 Cmpetitiveness Cnvergence and nternatinal Specializatin MT Press Cambridge MA. Dwrick S. and D.T. Nguyen 989 OECD Cmparative Ecnmic Grwth 95-85: Catch- Up and Cnvergence American Ecnmic Review vl. 9 pp. -3. Eurstat 99 Eurpean System f ntegrated Ecnmic Accunts ESA 2 nd editin uxemburg. Eurstat 986 Natinal Accunts ESA: Detailed Tables by Branch 986 uxemburg. Eurstat 988 Natinal Accunts ESA: Detailed Tables by Branch 988 uxemburg. Eurstat 989 Natinal Accunts ESA: Detailed Tables by Branch 989 uxemburg. Eurstat 99 External Trade Statistics: User s Guide uxemburg. Eurstat 99 Natinal Accunts ESA: Detailed Tables by Branch uxemburg. Fagerberg J. 988 nternatinal Cmpetitiveness Ecnmic Jurnal vl. 98 pp Feldman S.J. D. McClain and K. Palmer 98 Surces f Structural Change in the United States Review f Ecnmics and Statistics vl. 69 pp Galatin M. 988 Technical Change and the Measurement f Prductivity in an nput- Output Mdel Jurnal f Macrecnmics vl. pp Grssman G.M. and E. Helpman 99 Cmparative Advantage and ng Run Grwth American Ecnmic Review vl. 8 pp Hen A.R. 998 Ph.D. Thesis University f Grningen frthcming. Jrgensn D.W. F.M. Gllp and B.M. Fraumeni 98 Prductivity and U.S. Ecnmic Grwth Harvard University Press Cambridge MA. s B. 99 A Review f nterindustry Technlgy Spillver Measurement Methds Wrking Paper University f Twente. s B. and B. Verspagen 99 R&D Spillvers and Prductivity: Evidence frm U.S. Manufacturing Micrdata MERT Research Memrandum 96 University f Maastricht. ucas R.E. 988 On the Mechanisms f Ecnmic Develpment Jurnal f Mnetary Ecnmics vl. 22 pp Maddisn A. 98 Grwth and Slwdwn in Advanced Capitalist Ecnmies: Techniques f Quantitative Assessment Jurnal f Ecnmic iterature vl. 25 pp Maddisn A. and B. van Ark 989 nternatinal Cmparisn f Purchasing Pwer Real Output and abur Prductivity: A Case Study f Brazilian Mexican and US Manufacturing 95 Review f ncme and Wealth vl. 35 pp Osterhaven J. A.R. Hen and J.A. Van der inden 995 Technlgy Trade and Real Value Added Grwth f EC Cuntries paper presented at the Xth nternatinal Cnference in nput-output Techniques 2 nvember- december New Delhi ndia. Osterhaven J. and J.A. van der inden 99 Eurpean Technlgy Trade and ncme Changes fr 95-85: An ntercuntry nput-output Decmpsitin Ecnmic Systems Research vl. 9 pp

23 Pasinetti.. 93 The Ntin f Vertical ntegratin in Ecnmic Analysis Metrecnmica vl. 25 pp Rmer P.M. 99 Endgenus Technlgical Change Jurnal f Plitical Ecnmy vl. 98 pp. S-S2. Rse A. and S. Casler 996 nput-output Structural Decmpsitin Analysis: A Critical Appraisal Ecnmic Systems Research vl. 8 pp Sklka J. 989 nput-output Structural Decmpsitin Analysis fr Austria Jurnal f Plicy Mdeling vl. pp Slw R.M. 956 A Cntributin t the Thery f Ecnmic Grwth Quarterly Jurnal f Ecnmics vl. pp Statistics Netherlands 996 Time Series abr Accunts HeerlenVrburg. Swan T.W. 956 Ecnmic Grwth and Capital Accumulatin Ecnmic Recrd vl. 32 pp Van der inden J.A. and J. Osterhaven 995 EC ntercuntry nput-output Relatins: Cnstructin Methd and Main Results fr Ecnmic Systems Research vl. pp Verspagen B. 99 A New Empirical Apprach t Catching Up r Falling Behind Structural Change and Ecnmic Dynamics vl. 2 pp Verspagen B. 99 Estimating nternatinal Technlgy Spillvers Using Technlgy Flw Matrices Weltwirtschaftliches Archiv vl. 33 pp Wlff E.N. 985 ndustrial Cmpsitin nterindustry Effects and the U.S. Prductivity Slwdwn Review f Ecnmics and Statistics vl. 6 pp Wlff E.N. 994 Prductivity Measurement within an nput-output Framewrk Reginal Science and Urban Ecnmics vl. 24 pp

24 Appendix: ndustry classificatin nr. abbreviatin NACE-CO descriptin R6R25 AGR agricultural frestry and fishery prducts 2 FUE 6 fuel and pwer prducts 3 ORME 3 ferrus and nn-ferrus res and metals ther than radiactive 4 MNE 5 nn-metallic minerals and mineral prducts 5 CHEM chemical prducts 6 METP 9 metal prducts except machinery and transprt equipment MACH 2 agricultural and industrial machinery 8 OFFM 23 ffice and data prcessing machines precisin and ptical instruments 9 EEC 25 electrical gds TREQ 28 transprt equipment FOOD 36 fd beverages tbacc 2 TEXT 42 textiles and clthing leather and ftwear 3 PAPE 4 paper and printing prducts 4 RUBP 49 rubber and plastic prducts 5 OTHM 48 ther manufacturing prducts 6 BU 53 building and cnstructin TRAD 56 recvery and repair services whlesale and retail trade services 8 ODG 59 ldging and catering serices 9 TRAN transprt services 2 COMM 6 cmmunicatin services 2 CRED 69A services f credit and insurance institutins 22 OTMS 4 ther market services 23 NMAS 86 nn-market services 24

25 Table : Summary Statistics n abr Prductivity by ndustry in s f 985 Ecus per wrker ndustry Mean SD Max Cuntry a Share b Min Cuntry Share Mean SD Max Cuntry Share Min Cuntry Share AGR NTH GER NTH TA.4 2 FUE NTH DEN NTH GER.9 3 ORME NTH..24 DEN NTH DEN. 4 MNE NTH TA FRA BE. 5 CHEM NTH.8.23 TA NTH DEN. 6 METP GER BE FRA TA 2.5 MACH NTH.5.8 BE TA DEN OFFM BE. 2.9 TA FRA.6. NTH.3 9 EEC GER TA NTH DEN.5 TREQ FRA BE GER DEN.2 FOOD FRA NTH DEN NTH TEXT FRA BE FRA BE PAPE DEN TA GER.9 2. NTH RUBP NTH BE BE DEN. 5 OTHM GER TA NTH. 8. TA 2. 6 BU DEN TA BE TA.3 TRAD DEN NTH DEN NTH ODG BE NTH BE DEN.9 9 TRAN DEN TA BE TA COMM NTH FRA GER BE 2 2 CRED TA.3.4 FRA BE DEN OTMS GER NTH GER NTH NMAS NTH DEN NTH DEN 3. a Cuntry cdes are as fllws: BE: Belgium DEN: Denmark FRA: France GER: Western Germany TA: taly NTH: The Netherlands. b Shares f ttal natinal emplyment