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5 Jul 2013
Flash: Cyclical explanations in EU labor divergence – Goldman Sachs
FXstreet.com (New York) - According to the Economics Research Team at Goldman Sachs, “In recent years labor productivity growth – measured as output per hour worked – has been exceptionally weak in some European economies.”
We use a growth accounting framework to decompose changes in labor productivity in Europe, notes the Economics Research Team at Goldman Sachs.
The divergence in labor productivity trends is closely related to differentials in capital per worker. Looking at total factor productivity (TFP) estimates – which attempt to control for changes in labor and capital inputs – the divergence in productivity across Europe has been less extreme.
“The weakness of labor productivity and TFP in core European economies is largely a result of the cyclical position. In Germany, for example, weak investment in recent years has meant that growth in capital per worker has stalled as unemployment remains low, weighing on labor productivity growth, since ‘labor hoarding’ has also kept employment robust in the face of declines in output.” the team notes.
In Spain, Ireland and Portugal, employment has fallen significantly, particularly in domestic-facing sectors such as construction, boosting capital per worker employed and raising measured labor productivity in the process. Yet there are also signs of rising total factor productivity in these countries.
We use a growth accounting framework to decompose changes in labor productivity in Europe, notes the Economics Research Team at Goldman Sachs.
The divergence in labor productivity trends is closely related to differentials in capital per worker. Looking at total factor productivity (TFP) estimates – which attempt to control for changes in labor and capital inputs – the divergence in productivity across Europe has been less extreme.
“The weakness of labor productivity and TFP in core European economies is largely a result of the cyclical position. In Germany, for example, weak investment in recent years has meant that growth in capital per worker has stalled as unemployment remains low, weighing on labor productivity growth, since ‘labor hoarding’ has also kept employment robust in the face of declines in output.” the team notes.
In Spain, Ireland and Portugal, employment has fallen significantly, particularly in domestic-facing sectors such as construction, boosting capital per worker employed and raising measured labor productivity in the process. Yet there are also signs of rising total factor productivity in these countries.