Progress report on EU KLEMS project on Growth and Productivity in the European Union

1
Progress report on EU KLEMS project on Growth and
Productivity in the European Union

• Presentation for OECD Workshop on Productivity
  Analysis and Measurement
• 17 October 2006, Bern
• Bart van Ark, Groningen Growth of Development
  Centre,
• University of Groningen
• This project is funded by the European
  Commission, Research Directorate General as part
  of the 6th Framework Programme, Priority 8,
  "Policy Support and Anticipating Scientific and
  Technological Needs".

2
Main characteristics of EU KLEMS

• EU KLEMS project is 3-year statistical and
  analytical research project funded by 6th
  Framework Programme
• Create database on growth and productivity
  accounts by industry (NACE 60) for EU member
  states with a breakdown into contributions from
  capital (K), labour (L), energy (E), materials
  (M) and service inputs (S) from 1970 (revision
  and pre-revision)
• 15 research institutes across Europe and
  co-operation with institutes in U.S., Canada,
  Japan, Korea, China and Australia
• Strong involvement of many national statistical
  institutes (NSIs)
• Provide basic data (in particular national
  accounts) for EU KLEMS database
• Provide feedback on data use and methodologies
• Validate statistical module of the database with
  matches official statistics (there will also be
  an analytical module)
• Work with Eurostat and European Commission on
  implementation of growth and productivity
  accounts in national statistical programmes

3
NSIs and other third parties actively contribute
to EU KLEMS

• Four status positions
• Subcontracting Statistics Finland, ISTAT,
  Statistics Netherlands
• Participatory status Statistics Sweden, STATEC
  (Luxembourg), ONS (UK)
• Observer status INSEE, Statistics Denmark,
  Statistisches Bundesamt, Institute of National
  Statistics (Belgium), Statistics Austria,
  Statistics Ireland, INE (Spain), Statistical
  Office Slovakia, Statistical Office Poland, CSO
  Hungary, Czech Statistical Office, Statistical
  Office Slovenia, INE (Portugal), COS Malta
• In contact with NSS Greece, Lithuania, Latvia,
  Estonia, Cyprus
• Also contacts with
• USA (Harvard University, BEA, BLS),Japan (RIETI,
  Hitotsubashi), Korea (SNU), China (Univ. of
  Beihang) Canada (Statistics Canada, University of
  Alberta), Australia (ABS, Productivity
  Commission)
• Eurostat, OECD (Statistics Dept., DSTI)

4
Output from EU KLEMS database

• Series on nominal values of output (gross output
  value added), intermediate inputs (energy,
  materials, service inputs) and factor inputs
  (labour by age/skill/gender and capital by asset
  type) by industry country, compensation of
  factor inputs
• Volume series (1995100 and growth rates)
• Growth accounting series on output (gross output
  and value added-based) and contributions of
  intermediate, factor inputs, and total factor
  productivity
• Additional variables, technology variables (RD
  patents), import shares in intermediate inputs
• Also comparative levels with industry specific
  output and input PPPs

5
Preliminary version of analytical module of
database available in March 2006

• Analytical module of the database
• Core of the EU KLEMS database
• Uses best practice techniques in area of growth
  accounting
• Focuses on international consistency
• Aim is full coverage (country industry
  variable) for revision period
• Consider alternative or pioneering assumptions
  (e.g., output and price measurement of ICT goods
  and non-market services, measurement of skill
  levels, construction of capital services).
• Analytical database is a research data base and
  are not official statistics
• Statistical module of the database
• To be developed parallel to the analytical module
  in co-operation with NSIs
• Data consistent with those published by NSIs
• Methods according to rules and conventions on
  national accounts, supply and use tables,
  commodity flow methods, etc. (SNA 1993, ESA 1995)
  or at least supported by NSIs
• Statistical module meets statistical standards of
  NSI's and Eurostat and can eventually be
  incorporated in their present statistical
  practices and in New Cronos.

6
Time schedule final EU KLEMS year from Sep 06 -
Dec 07
7
Time schedule final EU KLEMS year from Sep 06 -
Dec 07
8
Mind the Gap-paper based on pre-EU KLEMS data -
indicative of what EU KLEMS will deliver

• Compare performance of continental European
  countries (France, Germany, Netherlands) with
  Anglo-Saxon countries (Australia, Canada, UK,
  U.S.)
• Take a bottom-up, industry approach after
  extensive data construction and harmonization
• Analyze sources of productivity growth
  (1987-2003) and productivity levels (1997,
  extrapolated to 2003), in particular in market
  services
• Analyze sources of gaps in productivity
  differentials

9
Continental European countries fall behind
Anglo-Saxon due to lower uptake in ICT intensity
and slowdown in TFP growth
Sources of growth contributions to market economy
LP growth (87-03)
Anglo-Saxon Economies
Continental European Economies
1987-1995
1995-2003
AUS
FRA
DEU
NLD
CAN
UK
USA
10
Differences mainly due to differences in TFP
growth in market services
Industry contributions to market economy TFP
growth (1987-2003)
Anglo-Saxon Economies
Continental European Economies
1987-1995
1995-2003
AUS
UK
CAN
FRA
USA
DEU
NLD
11
Market services in continental European countries
fail to transform ICT intensity in TFP growth
Sources of growth contributions to market
services LP growth (87-03)
Anglo-Saxon Economies
Continental European Economies
1987-1995
1995-2003
AUS
FRA
DEU
NLD
CAN
UK
USA
12
Methodology for level accounting (more tomorrow
in final session on PPPs)

• Dual productivity decomposition due to index
  number problems with primal
• Decompose relative sectoral output price (PY)
  between countries x and y into relative input
  price (PX) and productivity (A)
• Use CCD (Caves/Christensen/Diewert) index to
  aggregate across outputs (Y) and inputs (X) and
  industries (i)

13
Level accounting requires PPPs at industry level
(more tomorrow in final session on PPPs)

• A mix of production PPPs (unit value ratios) and
  specified expenditure PPPs for industry (gross)
  output (Timmer, Ypma and van Ark, 2006)
• Supply and Use tables to move from gross output
  to sectoral output PPPs (Inklaar and Timmer,
  2006)
• Intermediate input PPPs combine industry output
  PPPs for domestic inputs and exchange rates for
  imports with Supply tables to get commodity PPPs
• Labour PPPs relative wages of university
  non-university labour
• Capital PPPs investment PPPs for 6 assets
  combined with annualization factor (relative
  gross return on capital)

14
Low productivity levels in market services in
Anglo-Saxon economies, while high productivity
levels in European service industries are eroding
Anglo-Saxon Economies
Continental European Economies
1997
2003
AUS
FRA
DEU
NLD
CAN
UK
USA
15
Labor productivity gap in Anglo-Saxon market
services driven by TFP, but TFP gap small or
other way in Europe
Anglo-Saxon Economies
Continental European Economies
16
Next steps

• Are differences in productivity growth and levels
  in services real or are there elements of
  measurement error?
• Understanding of high productivity levels in
  European market services (perversely high?)
• Explaining differences in input use and
  productivity across industries countries, e.g.
  impact of differences in outsourcing
• Evaluate index number alternatives for
  productivity level comparisons
• Improve methodology for updating to other years
  on basis of harmonized SUTs (in EU KLEMS)
• more tomorrow in final session on PPPs WELCOME !