nep-eec New Economics Papers
on European Economics
Issue of 2015‒12‒12
eight papers chosen by
Giuseppe Marotta
Università degli Studi di Modena e Reggio Emilia

  1. The Spanish Productivity Puzzle in the Great Recession By Hospido, Laura; Moreno-Galbis, Eva
  2. The French Productivity Puzzle By Askenazy, Philippe; Erhel, Christine
  3. The UK's Productivity Puzzle By Bryson, Alex; Forth, John
  4. Implementing Monetary Policy in a Fragmented Monetary Union By Vari, Miklos
  5. Is potential output growth falling? By Mendieta-Muñoz, Ivan
  6. Okun’s Laws Differentiated by Education By Askenazy, Philippe; Chevalier, Martin; Erhel, Christine
  7. Toward a European Migration and Mobility Union By Jacob Funk Kirkegaard
  8. Forging a new Mittelstand compromise : lobbying strategies and business influence after the financial crisis By Keller, Eileen

  1. By: Hospido, Laura; Moreno-Galbis, Eva
    Abstract: While Spain has traditionally underperformed its European neighbors in terms of labor productivity, this trend reverses after 2007. Part of the explanation for this reversal is likely to be the direct impact of decreasing labor inputs relative to capital. Using a longitudinal sample of Spanish manufacturing and services companies between 1995 and 2012, we show that the recent increase in Spanish aggregate productivity is also driven by the behavior of firm-level total factor productivity (TFP), and by composition effects. By combining firm-level information on balance sheet items, collective agreements and imports/exports, we document that firm TFP is positively correlated to firm-specific collective agreements and access to external markets during the whole period. In addition, our estimates indicate that firm TFP was negatively correlated to the proportion of temporary workers during the expansionary period (1995-2007), but positively correlated during the crisis (2008-2012).
    Keywords: labor productivity, TFP, temporary workers, collective agreements, exporting firms
    Date: 2015–06
  2. By: Askenazy, Philippe; Erhel, Christine
    Abstract: Since 2008, France experiences a sharp productivity slowdown. Both output per hour and total factor productivity are particularly deceptive in the market economy. This recent trend contrasts with the acceleration of productivity during the previous crisis in the 1990’s and the continuous increase during the following decade. This text provides the first comprehensive exploration of this puzzling break. The direct impacts of the Great Recession on industry composition or reallocation of capital are not significant suspects for a slowdown occurring across business activities. Labour market mechanisms are better candidates. On the one hand, the French labour market policy has massively boosted the creation of low-productive jobs including very-short term employees and self-employed workers. On the other hand, firms, which benefit from massive tax cuts, have hoarded their high-skilled workforce. In addition, the spread of innovative HRM incentives, e.g. employee shareholding, seems to have turned productivity more sensitive to the business cycle (and especially to the fall of stock markets).
    Keywords: productivity puzzle, France, labour market policies, great recession
    Date: 2015–06
  3. By: Bryson, Alex; Forth, John
    Abstract: The 2008 Great Recession was notable in the UK for three things: the enormity of the output shock; the muted unemployment response; and the very slow rate of recovery. We review the literature which finds most of the decline in productivity is within sector and within firm before presenting new micro-analysis of workplace-level behaviour between 2004 and 2011 to gain insights into the processes that may have contributed to this aggregate picture. We find clear evidence of labour intensification but employers appeared incapable of turning this effort into improved workplace level productivity. Widespread pay freezes and cuts were often initiated in direct response to the recession. Workplace closure rates were little different to those experienced prior to the recession, but there is some evidence of a "cleansing" effect with poorer performing workplaces being more likely to close. There is some evidence of labour "hoarding", especially hoarding of high skilled labour: this has had no discernible impact on the rate of innovation. There is no impact of recession on either the number of HRM practices workplaces invested in, nor their returns on those investments. There is no evidence that workplaces have benefitted from Britain's "flexible" labour market as indicated by using recruitment channels used by welfare recipients or the use of numerically flexible workers. On the contrary, workplaces with increasing unionisation appeared to benefit in terms of improved workplace performance.
    Keywords: productivity, recession
    Date: 2015–06
  4. By: Vari, Miklos
    Abstract: This paper shows how interbank market fragmentation disrupts monetary policy implementation. Fragmentation is defined as the situation where some banks are cut from the interbank loan market. The paper introduces fragmentation into an otherwise standard theoretical model of monetary policy implementation, where profit maximizing banks, subject to reserve requirements, borrow and deposit funds at the central bank. In the presence of fragmentation, excess liquidity arises endogenously and the interbank rate declines below the central bank main rate. The interbank rate is then unstable. Using data on cross-border financial flows and monetary policy operations, this paper shows that this mechanism has been at work in the euro area since 2008. The model is suitable to analyze conventional and unconventional monetary policy measures in the euro area as well as in other currency areas.
    Keywords: Fragmentation, Excess liquidity, interbank market, TARGET2 imbalances
    Date: 2015–08
  5. By: Mendieta-Muñoz, Ivan
    Abstract: We estimate the rate of growth consistent with a stable unemployment rate for four advanced economies (Canada, Germany, the United Kingdom and the United States) using a Heckman-type two step estimation procedure that deals with the issue of endogenous regressors in a time-varying parameter model. The results show that this rate of growth of potential output has been falling in the four countries of study, so that these countries have been systematically loosing capacity to grow during the postwar era.
    Keywords: potential output growth rate, constant unemployment rate, time-varying parameter models
    JEL: C50 O40 O49
    Date: 2015–12–09
  6. By: Askenazy, Philippe; Chevalier, Martin; Erhel, Christine
    Abstract: Our aim in this note is to set Okun’s Law in a new perspective. We argue that highly educated labour should react differently to economic downturns and recoveries than lesser-educated labour. A simple model shows that when highly educated workers are engaged in long-run projects, the adjustments of their (un)employment to GDP changes become ambiguous. If the access to capital is not too affected by the cycle, these adjustements can be the opposite of the employment changes of the lesser- educated workforce. Estimations for the United States, the European Union and across Europe support the coexistence of different Okun’s laws according to educational attainment. This observation may help to explain recent puzzling macroeconomic facts.
    Keywords: Okun, low-middle educated, high-educated, business cycle
    Date: 2015–08
  7. By: Jacob Funk Kirkegaard (Peterson Institute for International Economics)
    Abstract: After surviving its worst economic downturn since the Great Depression and the near collapse of its common currency, Europe is now engulfed by hundreds of thousands of desperate migrants and refugees from the Middle East and Africa. It needs new and permanent migration institutions and resources not only to accommodate the influx of refugees but also to set up a new border control system throughout the region. These demands pose a challenge for European policymaking as serious as the euro crisis of the last five years. Kirkegaard proposes a migration and mobility union, to be implemented gradually, with the goal of comprehensively reforming European migration policy.
    Date: 2015–12
  8. By: Keller, Eileen
    Abstract: How did business interests succeed in influencing the post-crisis financial sector reform agenda? The present article draws on a remarkable instance of lobbying success in the process of reforming the Capital Requirements Directive (CRD4-CRR), which regulates banking within the European Union. Business lobbyists from Germany, supported by representatives from other countries, obtained a more favourable regulatory treatment of bank lending to small- and medium-sized corporations (SMEs) compared to the stipulations of the internationally agreed upon Basel III framework. An in-depth study of the formation of this new so-called SME compromise shows that existing approaches, which either highlight the special role of business in shaping public policies or the constraining effects of increased political salience and the politicisation of an issue cannot account for the dynamics of business influence in the case in question. Whereas an inside evidence-based strategy of influence failed, lobbying was successful because business representatives actively increased the salience of the issue through an outside lobbying strategy.
    Keywords: SME compromise, business influence, lobbying strategies, CRD4-CRR, Basel III, capital requirements, regulatory reform, financial crisis, banking regulation
    Date: 2015

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