Productivity, Investment, Growth: Where We Stand
This content delves into trends in productivity, investment, and growth across various countries, emphasizing the critical role of productivity in driving long-term economic progress. The data and insights presented shed light on the importance of enhancing output per worker to elevate living standards over time. Various factors affecting productivity growth are explored, including shifts towards service and public sectors. Through visual representations and quotes from experts like Paul Krugman, the content provides a comprehensive overview of the economic landscape.
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Productivity, Investment, and Growth Where we stand, What we know Alexander Schiersch & Martin Gornig 07.07.2016
Motivation Real GDP, 1995-2015 120.00 110.00 100.00 2010=100 90.00 80.00 70.00 60.00 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Germany France Italy Spain UK Japan USA Source: AMECO database 2 Franco-German Conference CEPII-CESifo-DIW-OFCE Alexander Schiersch & Martin Gornig, DIW Berlin
Motivation Productivity isn t everything, but in the long run it is almost everything. A country s ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker. Paul Krugman 3 Franco-German Conference CEPII-CESifo-DIW-OFCE Alexander Schiersch & Martin Gornig, DIW Berlin
1. 2. 3. Trends in productivity Private sector investments and development of capital stocks Investment restraint in the public sector 4 Franco-German Conference CEPII-CESifo-DIW-OFCE Alexander Schiersch & Martin Gornig, DIW Berlin
1 Trends in Productivity Labour productivity, annual growth, 1976-2014 5 4 3 percentage points 2 1 0 -1 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 Germany France Italy Spain UK Japan USA Source: SVR, 2015; HP-Filter, ? = 100 5 Franco-German Conference CEPII-CESifo-DIW-OFCE Alexander Schiersch & Martin Gornig, DIW Berlin
1 Trends in Productivity TFP growth, 10y averages, 1976-2015 2.5 2 1.5 percentage points 1 0.5 0 -0.5 -1 Germany France Italy Spain United Kingdom Japan United States 76-85 86-95 96-05 06-15 Source: AMECO database 6 Franco-German Conference CEPII-CESifo-DIW-OFCE Alexander Schiersch & Martin Gornig, DIW Berlin
1 Trends in Productivity Some reasons for the slowdown of productivity growth: a. Structural change toward services and public sectors (SVR, 2015) Share of manufacturing in total value added 1995 2004 LP growth manufact uring 1.9 1.8 0.5 0.0 2.2 2.3 2005 2014 LP growth manufact uring 0.8 0.8 0.1 1.6 0.4 0.9 LP LP Total LP growth Country Total LP growth growth service sectors 1.3 1.2 0.3 0.0 2.1 1.2 growth service sectors 1995 2014 Germany France Italy Spain UK USA 3.1 4.4 0.9 1.1 3.6 5.9 1.6 0.6 22.8 22.6 2.4 0.7 16.2 11.2 1.0 0.3 2.0 1.0 17.6 13.2 1.7 0.6 19.0 9.5 2.3 0.4 15.9 12.0 20.9 15.4 Source: SVR, 2015, Tab. 26 b. End of productivity gains from outsourcing/reorganizing value chains; one of the main drivers of productivity between 1995 and 2005 (SVR, 2015) 7 Franco-German Conference CEPII-CESifo-DIW-OFCE Alexander Schiersch & Martin Gornig, DIW Berlin
1 Trends in Productivity Some reasons for the slowdown of productivity growth: c. Rising productivity gap between global frontier firms and laggard firms hampered diffusion of technology (Andrews et al. 2015; OECD 2015) Percentage difference in labour productivity levels from their 2001 values (2001=0) Source: Andrews et al., 2015, Fig.1 8 Franco-German Conference CEPII-CESifo-DIW-OFCE Alexander Schiersch & Martin Gornig, DIW Berlin
1 Trends in Productivity Some reasons for the slowdown of productivity growth: d. Increasing skill mismatch due to rigidities in labour markets (OECD, 2015) e. Hampered reallocation of resources from aging and less productive incumbents toward dynamic thriving new entrants (OECD, 2015) f. Time lag (up to 30 years) between path braking innovations and its widespread use (Brynolfsson & Andrew, 2015) g. Rapid implementation of new technological innovations hampered by insufficient investment 9 Franco-German Conference CEPII-CESifo-DIW-OFCE Alexander Schiersch & Martin Gornig, DIW Berlin
2 Private sector investments and capital stocks 10 Franco-German Conference CEPII-CESifo-DIW-OFCE Alexander Schiersch & Martin Gornig, DIW Berlin
2 Private sector investments and capital stocks Growth of private non-residential gross fixed capital formation (real) 120 115 110 105 2007=100 100 95 90 85 80 2007 2008 2009 2010 2011 2012 2013 2014 2015 Germany France UK USA Source: OECD Economic Outlook 98 Database, Main Economic Indicator database 11 Franco-German Conference CEPII-CESifo-DIW-OFCE Alexander Schiersch & Martin Gornig, DIW Berlin
2 Private sector investments and capital stocks Growth of (real) net capital stock in manufacturing 108 106 104 102 2007=100 100 98 96 94 92 90 2007 2008 2009 2010 2011 2012 2013 Germany France UK USA Source: destatis, BEA, ONS, INSEE; own calculations 12 Franco-German Conference CEPII-CESifo-DIW-OFCE Alexander Schiersch & Martin Gornig, DIW Berlin
2 Private sector investments and capital stocks Change in (real) net capital stock of R&D-intensive manufacturing industries, 2007-2013 Motor vehicles & transport equipment (C29t30) Machinery and equipment (C28) Pharma and Chemical products (C20t21) Computer, electronic and optical products (C26) Electrical equipment (C27) -25 -20 -15 -10 -05 00 05 10 15 20 25 percentage points (cumulative, 2007-2013), real net capital stock USA UK France Germany Source: destatis, BEA, ONS, INSEE; own calculations 13 Franco-German Conference CEPII-CESifo-DIW-OFCE Alexander Schiersch & Martin Gornig, DIW Berlin
2 Private sector investments and capital stocks What can generally be done to stimulate private sector investments (OECD 2015): a. Reduce political uncertainties b. Ease entry and exit c. Strengthen antitrust policy, enhancing competition What can be done (from a German perspective): a. Reform depreciation methods (DIW, 2016a; DIW & HRI, 2014 ) switch from linear to decreasing balance method of depreciation overhaul of depreciation periods and depreciation factors (reform of Afa-Tables) b. Increase public sector investments to enhance demand and renew capital stock (DIW, 2016b) 14 Franco-German Conference CEPII-CESifo-DIW-OFCE Alexander Schiersch & Martin Gornig, DIW Berlin
3 Investment restraint in the public sector 15 Franco-German Conference CEPII-CESifo-DIW-OFCE Alexander Schiersch & Martin Gornig, DIW Berlin
3 Investment restraint in the public sector Investment ratios by public authorities as percentage of gross domestic product, at current prices 2.8 2.4 Overall 2.0 1.6 1.2 Municipalities 0.8 0.4 States Federal level 0.0 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 Source: German Federal Statistical Office; own calculations 16 Franco-German Conference CEPII-CESifo-DIW-OFCE Alexander Schiersch & Martin Gornig, DIW Berlin
3 Investment restraint in the public sector Net fixed capital formation by level of government In billion euros, current prices 15 10 5 0 -5 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 Federal level Federal States Municipalities Overall Source: German Federal Statistical Office; own calculations 17 Franco-German Conference CEPII-CESifo-DIW-OFCE Alexander Schiersch & Martin Gornig, DIW Berlin
3 Investment restraint in the public sector Investment at local levels Euro per capita, 2013 (343,724] (253.5,343] (186,253.5] [35,186] No data Source: DIW, 2015b, Abb. 2 18 Franco-German Conference CEPII-CESifo-DIW-OFCE Alexander Schiersch & Martin Gornig, DIW Berlin
3 Investment restraint in the public sector Correlation between social costs and public investments at municipality level Euro per capita, 2013 400 350 300 Social expenditures per capita 250 200 150 100 50 0 0 100 200 300 400 500 600 700 800 Investment per capita Source: DIW, 2015b, Abb. 5 19 Franco-German Conference CEPII-CESifo-DIW-OFCE Alexander Schiersch & Martin Gornig, DIW Berlin
3 Some suggestions from the German perspective Some suggestions for strengthening municipalities in the Germany: a. Municipality s tax revenues: federal government has few options to directly support specific municipalities (GRW) support via states; this would require modifying the horizontal fiscal equalization scheme by fully including municipality tax income (L nderfinanzausgleich) (DIW, 2015a) b. Municipality s expenditures: Reimbursement of (more) social expenditures by the federal level (DIW, 2015c) 20 Franco-German Conference CEPII-CESifo-DIW-OFCE Alexander Schiersch & Martin Gornig, DIW Berlin
Vielen Dank fr Ihre Aufmerksamkeit. DIW Berlin Deutsches Institut f r Wirtschaftsforschung e.V. Mohrenstra e 58, 10117 Berlin www.diw.de Redaktion Dr. Alexander Schiersch, aschiersch@diw.de
Literature Andrews, D., E. Bartelsman and C. Criscuolo (2015), Firm Dynamics and Productivity Growth in Europe Mimeo. Arnold, F., R. Freier, R. Geissler, P. Schrauth (2015b): Gro e regionale Disparit ten bei den kommunalen Investitionen, DIW Wochenbericht 43. Brynjolfsson E. & A. McAfee (2015): The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies, Norton & Company. Dreger, C., H.-E. Reimers (2016b): Welcher Zusammenhang besteht zwischen ffentlich und privaten Investitionen?, DIW Wochenbericht 18. Fratzscher, M., M. Gornig, A. Schiersch (2016a): Weak Corporate Investment Requires Immediate, DIW Economic Bulletin 15. Fratzscher, M., R. Freier, M. Gornig (2015c): Kommunale Investitionsschw che berwinden, DIW Wochenbericht 43. Gornig, M., C. Michelsen, K. van Deuverden (2015a): Kommunale Infrastruktur f hrt auf Verschlei , DIW Wochenbericht 43. DIW & HRI (2014): Private Investitionen in Deutschland, Studie im Auftrag des Gemeinschaftsausschuss der Deutschen Gewerblichen Wirtschaft. OECD (2015): The Future of Productivity, OECD, Paris. Sachverst ndigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung (2015): Zukunftsf higkeit in den Mittelpunkt, Jahresgutachten 2015/16, Statistisches Bundesamt, Wiesbaden. 22 Franco-German Conference CEPII-CESifo-DIW-OFCE Alexander Schiersch & Martin Gornig, DIW Berlin
1 Trends in Productivity Components of labour productivity change 1995-2004 2005-2014 4 4 3 3 2 2 percentage points percentage points 1 1 0 0 -1 -1 -2 -2 -3 -3 -4 -4 Germany France Italy Spain UK Japan USA Germany France Italy Spain UK Japan USA reduction in working hours reduction in working hours increase in value added increase in value added real labour productivity growth real labour productivity growth Source: SVR, 2015, Abb. 90 23 Franco-German Conference CEPII-CESifo-DIW-OFCE Alexander Schiersch & Martin Gornig, DIW Berlin
A1 Trends in Productivity TFP growth, 5y averages, 1976-2015 3 2.5 2 percentage points 1.5 1 0.5 0 -0.5 -1 Germany France Italy Spain United Kingdom Japan United States 71-75 76-80 81-85 86-90 91-95 96-00 01-05 06-10 11-15 Source: AMECO database 24 Franco-German Conference CEPII-CESifo-DIW-OFCE Alexander Schiersch & Martin Gornig, DIW Berlin
