NTTS 2017 SATELLITE
EVENT
CHALLENGES IN MEASURING PRODUCTIVITY,
GROWTH AND INTANGIBLES
…
EUROPE'S GROWTH AND PRODUCTIVITY ISSUES:
A VIEW FROM THE EUROPEAN COMMISSION
European Commission, DG ECFIN
Mary Veronica Tovšak Pleterski
Brussels, 17 March 2017
Productivity and growth

Economic growth is closely related with growth in living standards

Output growth has traditionally been attributed to the accumulation of human and
physical capital and the increase in productivity arising from technological innovation

In the light of limited natural resources, an aging overall population and sluggish
investments in Europe, productivity growth becomes ever more important

However, although some substantial technological progress (e.g. due to IT revolution
and the emergence of a duly knowledge-based economy), we widely observe a
deceleration of productivity growth across most of the industrialized countries…
Chart: Labour- and total factor- productivity (TFP) growth, EU-15, EU27 and US [trend; 1980-2016]
Labour productivity growth – potential
TFP growth - trend
Source: Own calculations by DG ECFIN based on AMECO data
Notes: Potential labour productivity is based on output per hour worked; growth rates are percent
changes; the TFP trend was calculated on the basis of Kalman filter; the EU-27 average refers to the EU
members states excluding Croatia
Possible explanations

reduced ability of some of the advanced economies to benefit from technological
advances, i.e. problems in terms of technological diffusion (e.g. OECD)

technological innovation has become marginally less important (e.g. Gordon)

TFP slowdown owes more to a declining efficiency in combining factors of production
than to a diminishing pace of technological progress (e.g. IMF, WP 15/116)

misallocation of resources (esp. capital) which are somehow not being allocated to
the "right" (most productive) sectors, thus impeding productivity growth (e.g. Haskel)

back to 'normal': recent subdued pace of productivity growth might be merely the
return to more normal rates of growth following extraordinary gains from the
information technology revolution (e.g. Fernald)

Measurement errors / data problems and conceptual issues, e.g. with regard to
capturing intangible assets (esp. in the light of the emerging knowledge-economy)

…
In fact, all points have some merits…
Policy response

Europe 2020: Europe's growth Strategy (> smart, sustainable, inclusive growth)

Commission's Work Programme: "A New Boost for Jobs, Growth and Investment"
(incl. Single Market- and Digital Single Market Strategy)

European Semester (many CSRs direct or indirectly aim at stimulating growth)

Horizon 2020: 60% budget increase compared to FP7

Juncker Plan / EFSI

Innovation Union
 …
Analytical work: At ECFIN we have several ongoing research activities which aim
at providing relevant insights and contribute to the debate, for instance with a
special focus on investments in intangible assets.
Related analytical work at ECFIN
Developments and determinants of trend total factor productivity growth (TFP):

Convergence towards the US in trend TFP levels is very weak; some convergence in
terms of trend TFP growth rates

Ageing workforce, stringent employment protection legislation and skill mismatch
(under-qualification), negatively related with trend TFP growth

Positively related with trend TFP growth: education (quality and quantity), R&D
spending, trade openness and investment in intangible assets
 Unlocking investment in intangible assets:

Including intangibles in source-of-growth framework changes growth pattern: GVA
grows more rapidly and capital deepening becomes dominant source of growth

TFP variance diminishes when including intangibles, i.e. looking at intangibles
improves our understanding of TFP differentials

Investment in intangibles likely to be affected by similar barriers and drivers as
tangible assets (regulations, public investment, human capital, access to finance);
structural factors matter generally more for intangibles whereas cyclical factors matter
more for tangibles
Typical data sources and gaps
Official statistics

National accounts, balance of payments

Business statistics

Social statistics (LFS, SILC)
=> Provide high quality offcial data, but gaps for long time series, industry detail and
asset-type breakdowns
Academic data

e.g. EU-KLEMS, WIOD, INTAN/SPINTAN
=> help to fill data gaps, testing and providing estimates on concepts not yet covered by
official statistics (e.g. "new intangibles"), but of relevance for policy making.
Take-away messages

Looking at intangibles is needed for a comprehensive understanding of the supply-side
components of growth, especially in the light of the emerging knowledge-based economy

Complementarities matter: it is not about investing either in certain types of tangible or
intangible capital rather than arriving to a well balanced mix of all of them

For sound policy-making we need robust data / comprehensive evidence, i.e. work
on both the statistical and the analytical fronts are needed.

Beyond intangibles, we need further research on the driving forces behind the observed
deceleration of productivity growth

Eventually we need to rethink the approach towards productivity (measurement)
and improve the statistics we are thus relying on…
To be discussed today…

Conceptual issues: Is there more than just inappropriate measurement/analytical scope?
How can we ultimately explain the observed deceleration of productivity growth?

Are there any practical proposals to improve the way we measure productivity and
economic growth?

Are our existing empirical measures of GDP, productivity, corresponding growth, etc. fit for
comprehensively approximating economic activities in times of digitalization and
knowledge–economy?

What kind of (further) data should we look at and what can be provided by statistics?