Compositional effects on productivity, labour cost and export adjustments. Bruegel Policy Contribution 2012/11, June 2012

Sectoral shifts, such as shrinkage of low labour productivity and the low-wage construction sector, can lead to apparent increased aggregate average labour productivity and average wages, especially when capital intensity differs across sectors. For 11 main sectors and 13 manufacturing sub-sectors, we quantify the compositional effects on productivity, wages and unit labour costs (ULCs) based and real effective exchange rates (REER), for 24 EU countries. Compositional effects are greatest in Ireland, where the pharmaceutical sector drives the growth of output and productivity, but other sectors have suffered greatly and have not yet recovered. Our new ULC-REER measurements, which are free from compositional effects, correlate well with export performance. Among the countries facing the most severe external adjustment challenges, Lithuania, Portugal and Ireland have been the most successful based on five indicators, and Latvia, Estonia and Greece the least successful. There is evidence of downward wage flexibility in some countries, but wage cuts have corrected just a small fraction of pre-crisis wage rises and came with massive reductions in employment even in the business sector excluding construction and real estate, highlighting the difficulty of adjusting wages downward.

Portugal. In economics, we call it conflict of interest! CEPS Commentary, 12 April 2013

Faced with limited options for coming up with the funds needed to pay off the next instalment on its bailout loan, Portugal is advised in this Commentary by economist Leonor Coutinho to trim the number of public sector employees, in combination with an increase in public sector working hours, among the lowest in Europe. In her view, these measures will have the best long-term implications both in terms of fiscal sustainability and of labour productivity, and may finally allow the country to resume the catching-up process that has been stalled since the start of EMU.

An Italian job: the need for collective wage bargaining reform. Bruegel Policy Brief ISSUE 2016/11 - JULY 2016

Highlights: Since the mid-1990s, Italy has been characterised by a lack of labour productivity growth, combinedwith a 60 percent growth in labour costs, 20 percentage points above euro-area average consumer price growth. As a consequence, Italy has become less competitive compared to its euro-area partners, the profitability of its firms has dropped and real GDP-per-capita has flatlined. • At the root of the substantial discrepancy between wages and productivity is Italy’s system of centralised wage bargaining which, in many ways, is designed without regard for the underlying industrial structure and geographical heterogeneity of the Italian economy.This has fostered perverse incentives and imbalances within Italy. • Collective wage bargaining, and in particular the determination of base salaries, should be moved from the national to the regional level for all contracts, in the public and private sectors.The Mezzogiorno,which might superficially be seen as losing out from this policy, would actually gain the most in competitiveness terms. • Furthermore, measures should be taken so that, in the long run, the Italian industrial structure evolves into a less fragmented small-company-based economy. This firm consolidation would likely expand the use of firm-level agreements and performance payments, and would improve Italy’s productivity and competitiveness overall.

Productivity, labour cost and export adjustment: Detailed results for 24 EU countries. Bruegel Working Paper 2012/11, 12 July 2012

As a background document for Bruegel Policy Contribution 2012/11 ‘Compositional effects on productivity, labour cost and export adjustment’, this working paper presents detailed results for 24 EU countries on: • The sectoral changes in the economy; • The unit labour costs (ULC) based real effective exchange rate (REER) and its main components; • Export performance. • The ULC-REERs are calculated: • For the total economy, the business sector (excluding agriculture, construction and real estate activities), and some main sectors; • Using both actual aggregates and fixed-weight aggregates, as the latter are free from the impacts of compositional changes; • Against 30 trading partners and against three subsets of trading partners: euro-area, non-euro area EU, non-EU.

Productivity and Credit Constraints: Firm-Level Evidence from Propensity Score Matching. Factor Markets Working Paper No. 3, September 2011

Drawing on a unique, farm-level panel dataset with 37,409 observations and employing a matching estimator, this paper analyses how farm access to credit affects farm input allocation and farm efficiency in the Central and Eastern European transition countries. We find that farms are asymmetrically credit constrained with respect to inputs. Farm use of variable inputs and capital investment increases up to 2.3% and 29%, respectively, per €1,000 of additional credit. Our estimates also suggest that farm access to credit increases total factor productivity up to 1.9% per €1,000 of additional credit, indicating that an improvement in access to credit results in an adjustment in the relative input intensities on farms. This finding is further supported by a negative effect of better access to credit on labour, suggesting that these two are substitutes. Interestingly, farms are found not to be credit constrained with respect to land.

Identifying Factor Productivity from Micro-data: The case of EU agriculture. Factor Markets Working Paper No. 34, January 2013

The classical problem of agricultural productivity measurement has regained interest owing to recent price hikes in world food markets. At the same time, there is a new methodological debate on the appropriate identification strategies for addressing endogeneity and collinearity problems in production function estimation. We examine the plausibility of four established and innovative identification strategies for the case of agriculture and test a set of related estimators using farm-level panel datasets from seven EU countries. The newly suggested control function and dynamic panel approaches provide attractive conceptual improvements over the received ‘within’ and duality models. Even so, empirical implementation of the conceptual sophistications built into these estimators does not always live up to expectations. This is particularly true for the dynamic panel estimator, which mostly failed to identify reasonable elasticities for the (quasi-) fixed factors. Less demanding proxy approaches represent an interesting alternative for agricultural applications. In our EU sample, we find very low shadow prices for labour, land and fixed capital across countries. The production elasticity of materials is high, so improving the availability of working capital is the most promising way to increase agricultural productivity.

Off-farm Labour Decision of Italian Farm Operators. Factor Markets Working Document No. 61, August 2013

This paper analyses the factors affecting off-farm labour decisions of Italian farm operators. Using micro-level data from the Farm Business Survey (REA) over the pre- and post-2003 CAP reform periods, we investigated the impact that operator, family, farm and market characteristics exert on these choices. Among other things, the paper focuses also on the differential impact of those variables for operators of smaller and larger holdings. The main results suggest that operator and family characteristics have a significant impact on the decision to participate in off-farm work more for smaller than for bigger farms. By contrast, farm characteristics are more relevant variables for bigger farms. In particular, decoupled farm payments, by increasing the marginal productivity of farm labour, lower the probability of working off the farm only in bigger farms, while coupled subsidies in pre-reform years do not have a significant impact on labour decisions. Finally, we show that, after accounting for the standard covariates, local and territorial labour market characteristics generally have a low effect on off-farm work operators’ choices.

ICT for growth: a targeted approach. Bruegel Policy Contribution 2012/10, June 2012

This Policy Contribution assesses the broad obstacles hampering ICT-led growth in Europe and identifies the main areas in which policy could unlock the greatest value. We review estimates of the value that could be generated through take-up of various technologies and carry out a broad matching with policy areas. According to the literature survey and the collected estimates, the areas in which the right policies could unlock the greatest ICT-led growth are product and labour market regulations and the European Single Market. These areas should be reformed to make European markets more flexible and competitive. This would promote wider adoption of modern data-driven organisational and management practices thereby helping to close the productivity gap between the United States and the European Union. Gains could also be made in the areas of privacy, data security, intellectual property and liability pertaining to the digital economy, especially cloud computing, and next generation network infrastructure investment. Standardisation and spectrum allocation issues are found to be important, though to a lesser degree. Strong complementarities between the analysed technologies suggest, however, that policymakers need to deal with all of the identified obstacles in order to fully realise the potential of ICT to spur long-term growth beyond the partial gains that we report.