Delayed IT Usage: Is It Really the Drag on Europe's Productivity?

This paper explores the quantitative plausibility of three candidateexplanations for the European productivity slowdown with respectto the US. The empirical plausibility of the common wisdom onthe topic (the "IT usage" hypothesis) is found to cruciallydepend on how IT-using industries are defined. If a narrow definitionis chosen, the IT usage hypothesis no longer explains the wholeof the EU productivity slowdown but just about 55 percent ofit, with the remaining part to be attributed to other factorsthan IT, as argued in the "IT irrelevance" view. No room isleft for IT-producing industries as another potential vehiclefor the US-EU productivity growth gap, instead. (JEL O4, O47,O52)     

Unemployment, growth and taxation in industrial countries

To the layman, the upward trend in European unemployment is related to the slowdown of economic growth. We argue that the layman's view is correct. The increase in European unemployment and the slowdown in economic growth are related, because they stem from a common cause: an excessively rapid growth in the cost of labour. In Europe, labour costs have gone up for many reasons, but one is particularly easy to identify: higher taxes on labour. If wages are set by strong and decentralized trade unions, an increase in labour taxes is shifted onto higher real wages. This has two effects. First, it reduces labour demand, and thus creates unemployment. Secondly, as firms substitute capital for labour, the marginal product of capital falls; over long periods of time, this in turn diminishes the incentive to invest and to grow. The data strongly support this view. According to our estimates, the observed rise of 14 percentage points in labour tax rates between 1965 and 1995 in the EU could account for a rise in EU unemployment of roughly 4 percentage points, a reduction of the investment share of output of about 3 percentage points, and a growth slowdown of about 0.4 percentage points a year.     

The New Economy in Europe, 1992-2001

Despite the fast catching up in the diffusion of informationand communication technologies (ICT) experienced by most EUcountries in the last few years, information technologies haveso far delivered few productivity gains in Europe. In the secondhalf of the past decade, the growth contributions from ICT capitalrose in six EU countries only (the UK, Denmark, Finland, Sweden,Ireland, and Greece). Unlike in the USA, this has not generallybeen associated with higher labour or total factor productivity(TFP) growth rates, the only exceptions being Ireland and Greece.Particularly worrying, the large countries in Continental Europe(Germany, France, Italy, and Spain) showed stagnating or mildlydeclining growth contributions from ICT capital, together withdefinite declines in TFP growth compared to the first half ofthe 1990s. It looks as though the celebrated ‘Solow paradox’on the lack of correlation between ICT investment and productivitygrowth has fled the USA and come to Europe.     

Service Deregulation,Competition, and the Performance of French and Italian Firms

This article reports estimates of the impact of service regulation reform on the productivity of French and Italian firms in retail, transports and professional services over the period 1998–2007. We implement a two‐stage least squares estimation: the first‐stage instruments mark‐ups, a financial measure of rents, with barriers to entry and the second stage estimates the impact of instrumented mark‐ups on total factor productivity (TFP), a real measure of firm efficiency. We find that entry barriers lower firm productivity by raising mark‐ups and rents. These estimates imply that, if French and Italian regulators had adopted the OECD best practices in terms of entry barriers, firms in these sectors would have increased their TFP level by five percentage points. We do not find any robust evidence of a non‐linear relation between mark‐up and productivity.     

Where do migrants go?

In this paper, we study migration decisions taken by risk-aversehouseholds. Aggregate data from the regions of Southern Italyare used to test whether risk is a significant determinant ofthe decision to migrate abroad or inside the country. This indeedappears to be the case for both foreign and domestic migrations,after controlling for unemployment and wage differentials andother plausible control variables. We interpret our resultsas evidence that, whereas financial markets are absent or malfunctioning,migration provides a shelter against uncertain income prospects     

THE IT REVOLUTION ACROSS THE UNITED STATES

In this paper we study the geography of the IT revolution in the U.S. economy. By relating the intensity of IT production and diffusion to labor productivity growth for the United States, we find three main results. First, states with above-average production intensity of IT manufacturing show more growth acceleration than other states. Second, the same applies to states with above-average IT diffusion. Yet, while the result for IT-producing states is strong, the result for IT-using states is somewhat smaller and less robust across specifications. Third, we also reconcile our state-wide pieces of evidence with previous industry and aggregate evidence. Accelerating productivity growth in IT-producing states stems from both IT-producing and IT-using industries in those states and is not a manifestation of the exclusive importance of IT production. Moreover, the less robust evidence for IT-using states is due to lower growth contributions from IT-producing and other industries in these states, not a symptom of a missing effect of IT usage.