The Productivity Slowdown Puzzle in European Countries

Productivity growth is slowing around the world and this is one of the most disturbing and, no doubt, worrying phenomenon affecting the world economy in the new millennium. The productivity slowdown may appear alarming in relation to the fact that weak productivity growth usually means a lower trend of the whole economy, as well as a lower level of profits, wage and a less public and private debt sustainability. In this project, our aim is to study the causes of this fall and, in particular, how much and in which manner labour market regulation, and its changes, may affect productivity of labour, capital and the technological progress. We start our analysis from some stylized facts. Specifically, we use the growth accounting methodology. We collect data for a large group of European and non-European countries and we refer to models related to the economic growth theory. In particular, the exogenous growth theory of Solow (1954) attributes the economic growth to technical progress, and it claim, in its standard formulation, that it does not depend on other economic variables. In 1963, Nicholas Kaldor listed some stylized facts which seemed to be, with sufficiently widespread, the general empirical regularities of the growth process. Starting from Kaldor model, we will attempt to build an "exogenous" and then an "endogenous" growth model, related to the labour market regulation, which would be coherent especially with the current characteristics of the economic cycle, characterized by a phase of post-crisis and mild economic recovery. Then, with the use of Structural VAR model, we will analyse the responses of three driver variables to three shocks. We will discuss these responses in order to understand the macroeconomic implications. Mainly, the empirical evidence provide support to our view of the complex relationship linking productivity, investment and technological progress with labour regulation in the long run.