ICT and Europe’s Productivity Performance
Industry-level Growth Acccount Comparisons with theUnited States

Robert Inklaar, Mary O’Mahony and Marcel Timmer
28 February 2004, Fukuoka workshop

EU-U.S. growth divergence
United States¾ Labour productivity
acceleration after 1995
¾ Faster ICT investment¾ Accelerating Total Factor
Productivity (TFP)
growth¾ ICT users grow fasterEurope¾ Labour productivity
slowdown after 1995
¾ Lagging ICT investment¾ Constant TFP growth¾ Slower non-ICTinvestment

Main Findings¾ U.S. TFP acceleration is not limited to ICTproducers => ICT users important too¾ Same industries in Europe and U.S. make large
ICT investment: trade, finance, businessservices¾ Slowdown in non-ICT investment widespreadand important¾ Wage moderation main suspectGrowth accounting framework¾ Follow standard growth accounting frameworkof Jorgenson & Griliches (1967).

y& = vL q& + vICT k&ICT + v N k&N + tf&p
Labour Labour quality ICT capital
productivity contribution deepening
growthcontribution

Non-ICT TFP growthcapital
deepening
contribution

Data (1)
¾ 26 comparable industries: 13 manufacturing
 13 non-manufacturing¾ 1979-2000/2001¾ France, Germany, Netherlands, UK, U.S.
 Four EU countries aggregated to EU-4
 +/- 70% of EU-15 GDP

Data (2)
¾ Investment in 6 capital assets for each industry
 3 ICT assets: hardware, communication andsoftware 3 Non-ICT: buildings, machinery, transport¾ Different labour categories by industry
 3-7 educational attainment categories¾ Use U.S. deflators for ICT
 Apply at detailed industry and asset level Improvement over non-quality adjusted deflators

Data (3)¾ Aggregation using Törnquist indices¾ Aggregation across countries using industryspecific output PPPs
¾ No input/output tables yet => planned for FP6¾ No adjustments for imperfect competition,
input utilization

Sources of labour productivity growthEU-4, 1979-1995

1995-2000

U.S., 1979-1995

1995-2000-0.50
Labour quality

0.00

0.50

Reallocation of hours

1.00

1.50

ICT capital deepening

2.00

2.50

Non-ICT capital deepening

3.00
TFP growthIndustry Perspective (1): ICT
contribution
Financial intermediation

Wholesale trade

Business services

Computers/electronicsCommunications

U.S.
EU-4

Retail trade

0.00

0.05

0.10

0.15

0.20

0.25

0.30

Industry Perspective (2): TFP
growthComputers/electronics

Retail trade

Wholesale trade

Agriculture

Financial intermediation

Communications
U.S.
EU-4

Transport services

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

Non-ICT investment and wage
moderation (1)1979-1995 1995-2000 Difference
Non-ICT capital deepening
EU-4
2.59
0.88
-1.71
U.S.
1.46
1.79
0.33
Wage/non-ICT rental rate
EU-4
1.88
0.53
U.S.
1.27
1.46

-1.35
0.19

Non-ICT investment and wage
moderation (2)k&iN,t = β1w& i ,t + β 2 r&i ,Nt + vi + ε i ,t
Non-ICT capital
deepening

Wage growth Non-ICT rentalrate growth

Wage growthβ1

Non-ICT rental rate growth

β2France
0.302**(9.961)0.011(0.685)Germany0.460**(5.032)-0.081**(-3.450)

Netherlands
0.550**(6.068)0.021(0.648)Industrydummies
UK
0.425**(9.411)-0.008(-0.854)

US
0.582**(8.159)-0.124**(-5.636)

Conclusions¾ Divergence in productivity growth after 1995 between
EU and U.S.
¾ U.S. acceleration related to ICT => few industries
very important¾ EU slowdown related to slower non-ICT investment=> very widespread¾ Better data => FP6¾ More analysis: factor demand, imperfect competition