GrowthinEuroAreaLabourQuality.pptVIP

Composition of euro area work force changes over time: Share of workers with higher education tends to increase Workers with different education levels, work experience and skills move in an out of employment Raw measures of labour input such as total hours worked or employment provide biased measures of actual labour input Adjusting for labour quality is important for understanding sources of labour productivity growth and fluctuations in labour input over the business cycle Evidence suggests that positive labour quality growth contributes significantly to growth in labour productivity (Jorgensen, 2004) Has there been a shift in the composition towards workers with lower skills in the 1990s? What drives sustained decline in euro area labour productivity growth? How should economic policies be designed to “further improve knowledge and innovation” (mid-term review of the Lisbon agenda) Validation using country estimates supports robustness of our calculation for the euro area Alternative data and methods available for a shorter time period: Robust to including additional determinants of labour quality (sector and part/full-time status): 1993-2004 average annual growth goes from 0.61% to 0.65% Robust to accounting for changing weights using the regression approach: 1995-2001 average annual growth goes from 0.47% to 0.44% Best practice in productivity measurement suggests taking into account labour quality adjustment (OECD, 2001) Decomposing labour productivity (measured per hours worked) growth into: Capital deepening (growth in capital services per hours worked) Labour quality growth TFP growth (residual) Previous decompositions of euro area labour productivity have not considered quality adjustment, thus overestimating TFP growth (e.g. ECB, 2004, Vijselaar and Albers, 2004) Done: Quality-adjusted measure of wage growth: lower growth in quality adjusted real wages, weak cyclicality Quality of the available labour force: quality growth of the unemployed higher than