Productivity Growth in Europe and in General

money.jpgI have reported before on the productivity growth in the US and the apparent correlation between this and income inequality. In doing so I drew, among others, on the work of  Ian Dew-Becker and Robert J. Gordon from Northwestern University and their paper Where Did the Productivity Growth Go? Inflation Dynamics and the Distribution of Income. Now, as New Economist reports in relation to the NBER Summer Institute 2006 week two mr. Gordon and Dew-Becker are at again as they try to explain the relative slowdown of European productivity growth vis-a-vis the US with their paper The Slowdown in European Productivity Growth: A Tale of Tigers, Tortoises, and Textbook Labor Economics.

One of the exogenous driving forces in this was an increase in labor taxes before 1995 and a reduction after 1995. We show that a substantial portion of the post‐1995 turnaround in the growth of European hours per capita can be explained by a reversal in the previous regime of ever‐increasing tax rates. We conclude that Europe must accept slow productivity growth as a consequence of labor market reforms that have achieved a desirable turnaround in growth of hours per capita.

Especially the comments section where also one of the authors (Ian Dew-Becker) contributes is a good read. In my mind this field of macroeconomics is very interesting and crucial to understand (I am hard at work at the moment). Questions such as what drives productivity growth, what drives economic growth in general, which determinants and factors are salient compared to others are very interesting and important questions to think about I think.