Structural change, institutions and the dynamics of labor productivity in Europe

Riccardo Pariboni,Pasquale Tridico

doi:10.1007/s00191-019-00641-y

Abstract

The objective of this paper is to explain the reasons behind the dynamics of labor productivity (LP) growth during a process of institutional and structural change. We show - by means of a theoretical discussion and an empirical analysis, conducted on a sample of 25 European countries for the period 1995–2016 - that four main channels contribute to explaining the evolution of LP. First, the speed of investment, which incorporates innovation and favors an increase of LP growth; second, the speed of Research and Development (R&D), which allows for the creation of new ideas and shows the “dynamism of a society”, having positive effects on LP; third, the deregulation of labor markets and the increase of temporary employment, both of which encourage labor-intensive strategies by firms, with low value-added and low productivity gains; fourth, the direction of structural change, which can take place toward services industries affected by “Baumol’s disease”.

Highlights

In recent years, several developed countries have experienced a productivity slowdown, which has taken place in the middle of a process of institutional and structural change.Max Planck Institute for the Study of Societies (MPIFG), Cologne, GermanyRoma Tre University, Dipartimento di Economia, via Silvio D’Amico 77, 00145 Rome, ItalyR
The second channel is the speed of investment in Research and Development (R&D), which allows for the creation of new ideas and shows the “dynamism of a society” in the sense of Kaldor, with positive effects on labor productivity (LP)
The paper proceeds as follows: in Section 2 we explore the possible threats to the dynamics of labor productivity that can arise from an ungoverned process of structural change

Summary

Introduction

Several developed countries have experienced a productivity slowdown, which has taken place in the middle of a process of institutional and structural change. A partial exception is represented by Central and Eastern European countries, where the growth of labor productivity has, to an extent, flattened, but at generally higher rates It is not, the purpose of this article to discuss the differences and specificities of each country and/or their welfare models. This framework needs to adapt to the new technological systems that have emerged.

Structural change and labor productivity: A brief review

Labor flexibility and productivity

Toward a model of labor productivity

The model

Findings

Concluding remarks