11/02/2012: Labor Productivity - some cross-EU comparatives

There has been much of talk about Euro area (and EU27) competitiveness trends recently in the media. Some of the commentary I've seen references the issue of decoupling in competitiveness across EU states. In light of this, I decided to take a look at productivity trends. Using eurostat data, I was able to:

1. Take eurostat main series for per person aggregate (total) productivity index that sets 2005=100
2. Rebase the index to Q1 2000=100 and recompute entire set of EU27 countries, plus EA17 and EU27 aggregates
3. Obtain via (1) and (2) above new set of productivity indices that reflect dynamics in per person productivity since Q1 2000 through Q3 2011
4. Note: data is seasonally adjusted and I am only reporting countries where data is hours adjusted as well.

Here are the core charts (I added Ireland and EU 27 average in every chart):

So few trends are apparent:

• Ireland performs - since the beginning of the crisis extremely well in terms of productivity improvements and levels - much due to the massive destruction of its employment base (I commented on this effect a number of times before). Overall - this is remarkable performance albeit at huge cost.
• Spain has posted some significant increases as well, mostly due to destruction of employment - much more so than Ireland.
• Italy is performing poorly as does Greece. In fact, Greece is the third worst performer in the entire EU27 in terms of productivity growth since the beginning of the crisis (Q1 2008).
• Portugal improvements appear to be largely consistent with the pattern for Spain.
• Finland clearly leads the pack (after Ireland) in the group of Small Open Economies (SOEs)
• Strong trends in growth in East-Central Europe (ex Hungary and Slovenia) 

Now, let's take a look at cumulative growth in productivity since the beginning of the crisis - note: green boxes mark countries that outperform EU27 average by more than 1/2 STDEV, while red boxes mark those countries that underperform the EU27 average by more than 1/2 STDEV:

And similar analysis for cumulative growth in productivity since Q1 2000:

 So is there 'decoupling' going on in terms of labor productivity? Not really. Here's what's happening:

• Spain shows highest gains in total productivity since Q1 2008 but weak (roughly average) gains since Q1 2000
• Ireland shows second highest gains since Q1 2008 and above average (6th highest in EU27) gain since Q1 2000
• Slovakia doing spectacularly well, albeit, of course, from low levels, as is Estonia (though not too great during the crisis period)
• During the crisis, Belgium, UK, Greece, Hungary, Italy, lux & Sweden all posted below average (more than 1/2 STDEVs) performance
• Since Q1 2000, Italy and Lux were the only two statistical underperformers.

So unless we go beyond Q1 2000 (the period for which we don't really have coherent comparable data) there is no 'decoupling' going on in labor productivity. There is shallow growth in it on average, but no dramatic 'decoupling'. In other words, much of core Europe is pretty poor in terms of labor productivity growth, while East-Central Europe and Ireland are performing pretty well.

5/2/2012: Irish Labour Productivity - some latest trends

Chart of the Week, folks, comes courtesy of the ECB database on labour productivity. It contains the full set of productivity indices for Ireland by sector, reported on the basis of productivity per person employed. And it speaks volumes of the myths we hear in the media.

So the Chart of the Week is:

Now, what does it tell us? (And please, no protests - I am decomposing the above chart into some interesting trends using as illustrations more charts).

• Irish productivity - overall, across all sectors - has been rising during the crisis 
• Although as I pointed out so many times, much of this rise in Ireland's overall productivity is due to jobs destruction in retail, construction and other sectors, not to some intrinsic rises in real productivity. Jobs destruction concentrated in less productive sector helps overall total productivity. Despite the fact that it causes massive unemployment and other problems. See chart below for evidence on this.

• Another interesting feature of the data is the rapid, continuous decline in productivity in the broadly-defined public sector, arrested around Q3 2010 and now running basically flat. But historically, public sector productivity has contributed negatively to overall productivity performance of the economy.

• Overall, so far, our labour productivity is 5.2% ahead of the EA17 and 4.7% ahead of EU27 in Q3 2011. Year on year, EA 17 labour productivity is up 1.04%, EU27 is up 1.34% and Irish total labour productivity is up 2.28%. This is a strong performance for Ireland, compared to EU and EA averages. As already mentioned above, Construction sector productivity declined in Q3 2011 some 15.2% yoy and productivity in Information & Communication sector fell 8.15% yoy. Productivity grew in Financial and Insurance Activities sector by 3.11%, in Agriculture and associated sub-sectors by a very impressive 24.8% (although this is largely due to higher commodities prices and exchange rates effects, as well as continued robust inflows of CAP money into Ireland). In Public Administration and the rest of the public sector sub-sectors, productivity grew 2.6% year on year in Q3 2011.

And to summarize the emerging new (crisis-period post Q1 2008) trends, here is a chart plotting correlations between productivity index performance for Ireland overall, against EU27, EA17 and specific sectors of the economy: