The European productivity slowdown: causes and implications

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This paper, by Daniel Gros and Jørgen Mortensen, has been prepared for the international conference entitled “Europe after the enlargement”, to be hosted by the Center for Social and Economic Research (CASE) in Warsaw on 8-9 April.

Abstract 

In March 2000 in Lisbon, EU heads of state and government set the strategic goal to become the most competitive and dynamic knowledge-based economy in the world, capable of sustainable economic growth with more and better jobs and greater social cohesion. These commitments were confirmed at the Barcelona European Council, which agreed that investment in European R&D should be increased to 3% of GDP by 2010. 

The move forward towards the Lisbon and Barcelona goals was, however, rather slow during the first three years of the Lisbon strategy. Growth in output and, notably, productivity has been dismal and little progress has been made towards reaching the R&D target. Evidence presented in a CEPS Working Document by Francesco Daveri and initially prepared under a study undertaken for the European Parliament suggests that the slowdown of productivity in the 1990s and early years of the present decade was more than just a business-cycle phenomenon. In fact, the slowdown of productivity growth seems to have been largely attributable to the inclusion in the labour market of groups with a comparatively low productivity. 

The paper concludes that in the short term, up to 2010, the highly desirable increase in the labour force participation of women and the elderly is unlikely to be achieved without accepting that this expansion of employment will be accompanied by a temporary slow rise in productivity, as new groups have to go through a learning process and acquire the skills required in the information society. This makes efforts to raise the level of R&D and innovation towards the Barcelona target all the more compelling.

To read the paper in full, visit the Center for Social and Economic Research website.

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