2001). Likewise, we look at different wage bargaining systems that, by shifting part of the innovation rents to workers, may reduce the expected returns of innovative activity (Teulings and Hartog, 1998). Our working hypothesis is that these factors may be of particular importance in a period characterized by the rapid diffusion of a new technology (ICT), which requires significant organizational and skill changes (see e.g. Baily, 2002 and Bresnahan _et al._ 2002).

The paper is organized as follows. Section 1 describes the main features of recent growth trends in OECD countries. In Section 2, we present our productivity model and highlight the potential role of innovation (proxied by R&D), human capital and labor market regulations and institutions for industry productivity growth. The dataset used in our empirical analysis -- 17 manufacturing industries in 18 OECD countries over the 1984-1998 period -- is presented in Section 3, while our empirical results are discussed in Section 4. Finally, we draw some concluding remarks in Section 5.

# **1. Recent growth trends**

# **_Output, productivity and employment patterns_**

Much of the discussion about economic growth in recent years has been motivated by a widespread perception that some countries, most notably the United States, have experienced an acceleration in growth patterns while others, mainly in Continental Europe and Japan, have shown a sluggish growth. This perception is largely confirmed by a simple comparison of average growth rates over the past decade (Table 1). Here we use cyclically-adjusted series to control for differences in business cycle conditions across countries.<sup>1</sup> For the OECD area as a whole, trend GDP per capita growth rates slowed down in the 1990s as compared to the previous decade. However, there has been a fairly widespread pick up in growth in the second half of the decade in most countries. This aggregate pattern, however, hides marked differences across regions and individual countries: while GDP growth has accelerated in the United States and Canada, it has slowed down in EU15. The latter pattern is largely due to the poor growth performance of most large EU economies, while some (mainly small) countries have shown clear signs of acceleration in growth.

The table also shows how these different growth patterns have come about. In particular, the first three columns shows how GDP growth in the business sector<sup>2</sup> can be decomposed into growth in total hours worked and growth in hourly productivity, while the remaining two columns shows the driving forces of hourly productivity, namely changes in capital/labor ratio and multifactor productivity (MFP) growth. Labor productivity growth accounts for at least half of GDP growth in most OECD countries and considerably more than that in many of them. Notwithstanding differences

> 1 . Indeed, over the 1990s business cycles were largely a-synchronized across OECD countries and this may lead to inaccurate cross-country comparisons. In most of this section, we use cyclically-adjusted series obtained by applying an extended version of the Hodrick-Prescott filter where the well-known end-of-sample problem is minimized by prolonging the time series out of sample using the average growth rates observed over the entire decade. See Scarpetta _et al_ ., (2000) for more details.

> 2 . The business sector is defined as the total economy minus _Community, Social and Personal Services._

3