October 04, 2002
The Industry-Level Shape of Productivity Growth in the 1990s

The Industry-Level Shape of Productivity Growth in the 1990s: Van Ark, Inklaar, and McGuckin (from Groeningen and the Conference Board) have a very interesting decomposition of labor productivity growth across the 1990s for both the U.S. and Western Europe. The thing that stands out is the extraordinary boost--both relative to the early 1990s and relative to Europe--in American productivity growth in service industries that intensively use ICT [information and communications technologies]. Take out these industries' productivity performance--take out wholesale and retail trade and finance, take out WalMart and Land's End, and the U.S.-E.U. productivity differential post-1995 goes away. (Of course, there still is the slowdown in EU productivity growth over the 1990s to think about.)

"'CHANGING GEAR': Productivity, ICT and Service Industries: Europe and the United States," by Bart van Ark, Robert Inklaar, and Robert H. McGuckin | Contact email address: h.h.van.ark@eco.rug.nl | Version: June 19, 2002

Posted by DeLong at October 04, 2002 08:26 AM | Trackback

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Why should productivity growth have slowed in Europe? Conjecture: if productivity growth in the us was concentrated in servcie industries, perhaps there is a difference in the organization of service inductries in Europe.

Recently, Wal-Mart reported that it was sharply limiting plans to build stores in Germany. When I shop in Germany or France, I have a sense that there is far less need felt by business leaders to provide the mass shopping experience that marks a Wal-Mart or Sam's Club. Supermarkets seem far more "relaxed" in operation than Safeway. Perhaps Europeans "feel" that concern with walking out of a market with 6 months supply of napkins or detergent.

Posted by: on October 4, 2002 12:15 PM

Whole Foods Markets do not strike me as efficient as Safeway, but the shopping is more enjoyable. I buy less at a time, but return more often. Same in Europe.

Perhaps different life-styles allowed for more service productivity gains in America in recent years. Even fast food is less fast in France.

Posted by: on October 4, 2002 12:49 PM

Perhaps the instructive insight is that there is no really pan-European supermarket chain on anything like the scale of Wal-Mart in America. Certainly, major national retail chains in Britain and France, for example, have made limited forays to open cross-border branch stores but some of these ventures have resulted in conspicuously unsuccessful outcomes, leading to closures in some cases.

By many accounts, shopping preferences diverge across European national borders, as do prices of branded products and durables. The introduction of the Euro has illuminated cross-border price differentials and pressures from national consumer associations are mounting accordingly. Pan-European chain stores would need to cope with the customer relations and supply chain problems likely to arise from price differentials for the foreseeable.

My guess, since I have no inside knowledge of the business, is that reported Wal-Mart decision relating to reining back the opening of new stores in Germany reflects three specific factors: (1) margin pressure in Germany - notoriously, prevailing gross margins are reported as lower than in the UK; (2) consensus among forecasters that GDP growth in Germany is likely to remain relatively low in European terms for some time to come - the outcome of the recent elections in Germany has been widely interpreted as indicating that Germany's electorate has no liking for reforming the present state welfare system which leads, by current media reports, to a 50% oncost to wages to fund benefits; (3) typically, national retail chains each have an infrastructure of regional distribution centres to serve their local stores - without such an infrastructure, a chain is disadvantaged, but I am sure that is rather like trying to teach Wal-Mart how to walk.

Posted by: Bob Briant (UK) on October 4, 2002 01:33 PM

In Britain the government has banned almost all building of out-of-town hypermarkets (i.e Wal-Mart sized ones) for various reasons, mainly to preserve town centres.

Posted by: George on October 5, 2002 04:40 AM

>>national retail chains each have an infrastructure of regional distribution centres to serve their local stores - without such an infrastructure, a chain is disadvantaged<<

On the Wal-Mart front you really have a strong point here Bob. W-M seems to get most of it's productivity advantage by really detailed organisation on the distribution side. And without a significant starting base in Europe it's difficult to get going. Same story non-gasoline cars, non-qwerty keyboards, or, for that matter Linux. In increasing returns environments, getting in on the act is difficult.

Of course while Wal-Mart has difficulty getting in, some incumbent or other will manage to benefit from their experience and use what's called 'second-mover' advantage. So Europe will one day catch up on the retail distribution difference front. Financial services probably ditto. It's the high tech end, ICT, R&D patenting, pharmaceuticals etc. where the warning signals should be flashing in Europe.

For the rest, as I watch US films, and look at US workers in action, I really can't help thinking that they look pretty much like their European equivalents. Bruce Willis's football ground security guard (to take a case in point) really doesn't seem to operate 1.5 times more effectively than his European equivalent. So I have one final problematic question here: just what role has the high dollar value, feeding and fed (in part) by the financial bubble have to play in this story.

Posted by: Edward Hugh on October 5, 2002 07:26 AM

There are interesting parallels between critiques of globalisation and debates in W European countries over out-of-town versus town-centre shopping developments. Few would seriously argue that, as a generality, the UK is under-provided with either shops or supermarkets in what ranks as the third most densely populated country in Europe. Small stores serving village communities have been closing on trend. Since public transport services in rural areas are often sparse, no-car households are left without low-cost access to shopping.

The challenging professional question is about what continues to drive planning applications to develop still more major shopping complexes and superstores. Putting social considerations aside, it seems doubtful that familiar models of competitive markets provide entirely credible explanations. Large urban areas often have clustering of stores but with no let up in developer pressures. Competitive pre-emption in a national market with a distinctly oligopolistic structure seems to be the game and games theory rules. OK?

Posted by: Bob Briant on October 5, 2002 07:28 AM

One last point. Thanks a lot Brad. I'd seen the van Ark material reffered to in the literature, but had never got round to digging it out. You just made my day. Thanks.

Posted by: Edward Hugh on October 5, 2002 07:38 AM

We have spent considerable time in Germany and France and generally find living in either country for a middle class family at least as comfortable as in America. There are structural employment problems facing young men and women, and there is hardship, but we do not "notice" a standard of living that is in any way inferior to what we find in America. What exactly does the productivity gap amount to?

A foolish philosopher....

Posted by: on October 5, 2002 03:30 PM

>>>For the rest, as I watch US films, and look at US workers in action, I really can't help thinking that they look pretty much like their European equivalents. Bruce Willis's football ground security guard (to take a case in point) really doesn't seem to operate 1.5 times more effectively than his European equivalent. <<<

He's probably not significantly more productive. On the other hand, he probably had an easier time finding a job, and works longer hours (and hence gets paid more) than his European counterpart.

Per-capita GDP is equal to hours worked/year * productivity/hour * labor force participation.

The bulk of the difference between the US and the EU simply comes from the longer hours worked in the US (eg, in 2000, the average is 1979 hours/year in the US, compared to 1480 in Germany). The rest comes from a combination of higher labor force participation (in particular, more women work and the young find it easier to get jobs in the US), and better productivity. Unfortunately, you can't just look at productivity/hour to see the productivity difference, since it's not independent of labor force participation. Higher labor force participation will tend to lower average productivity per hour, because the least-skilled workers will get hired last.

Posted by: on October 6, 2002 07:20 AM

I realize that the biggest growth in productivity comes from growth in productivity within sectors, and transfer of resources from less-productive to more-productive sectors is a relatively minor part, but Ed's comment about a European and American security guard has inspired me to think about this: what are the differences in the distribution of economic activity by sector in Europe and the U.S.? Could the U.S. economy being more concentrated in more productive sectors play any part in its productivity lead?


Posted by: Julian Elson on October 6, 2002 06:24 PM
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