Abstract
AbstractEurope has witnessed a considerable labour productivity slowdown in recent decades. Many potential explanations have been proposed to address this productivity ‘puzzle’. However, how the quality of local institutions influences labour productivity has been overlooked by the literature. This article addresses this gap by evaluating how institutional quality affects labour productivity growth and, particularly, its determinants at the regional level during the period 2003–2015. The results indicate that institutional quality influences regions’ labour productivity growth both directly—as improvements in institutional quality drive productivity growth—and indirectly—as the short- and long-run returns of human capital and innovation on labour productivity growth are affected by regional variations in institutional quality.
Highlights
Productivity growth in the European Union (EU) has been low and tended to decline in recent decades
The results indicate that institutional quality influences regions’ labour productivity growth both directly—as improvements in institutional quality drive productivity growth—and indirectly—as the short- and longrun returns of human capital and innovation on labour productivity growth are affected by regional variations in institutional quality
In a Europe that is affected by a large number of challenges, ranging from the increasing competition derived from globalisation and economic integration to ageing and rising environmental risks, labour productivity growth is often regarded as the most feasible way to confront uncertainty and secure the viability of the European social model
Summary
Productivity growth in the European Union (EU) has been low and tended to decline in recent decades. Productivity growth in the 1960s in the EU-15 was a healthy 4.6% per annum (Carone et al, 2006), but has been declining decade on decade since .. Between 2008 and 2016, labour productivity change in the Eurozone was just 0.35% per annum (Draghi, 2016). The decline in productivity over time has been accompanied by a significant worsening of the EU’s position relative to other areas of the world. Since the mid-1990s, productivity growth in the Eurozone has been year-on-year lower than that observed in other advanced economies and, except for 1999, in emerging market economies (Draghi, 2016).
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