25 Years of ZEW – How to Tackle Global Productivity Issues

In the past 10 years, productivity growth has experienced a sharp declined across the globe. Economic researchers are thus confronted with questions about the consequences of the current weakness in productivity and the possible solutions to this problem. Over the course of four sessions and a podium discussion at the 25th anniversary celebration of the Centre for European Economic Research (ZEW) in Mannheim, various ZEW researches from different research units examined several dimensions of this problem and discussed potential measures to spur productivity.

"We have been seeing a significant worldwide decrease in real gross domestic product (GDP) per working hour over the past few years," explained ZEW President Professor Achim Wambach in his introduction to the scientific part of the anniversary celebration. Studies indicate that Germany currently ranks high in terms of labour productivity, i.e. GDP per work volume, coming behind the United States, Canada and Japan. The reasons for this development yet remain largely unclear. "This trend cannot be explained by errors in measurement," said Achim Wambach.<o:p></o:p>

In his presentation, Dr. Georg Licht, head of the ZEW Research Department "Economics of Innovation and Industrial Dynamics", emphasised that the development of labour productivity alone does not explain the current weakness in productivity growth. It is necessary to also take other factors into account. "One such factor is the demographic development," said Licht. Recent research findings have shown that start-up activity is particularly high among individuals in the age cohort 35–50. This age cohort has, however, been constantly shrinking for a number of years. As a result, the number of business start-ups is decreasing across almost all countries. "The changing age structure has a significant impact on start-up activity," summarised Georg Licht. It remains for researchers to figure out the potential barriers for start-ups to enter the market and grow their business.<o:p></o:p>

Digitalisation as key driver of productivity growth<o:p></o:p>

In his speech, Professor Kai Hüschelrath, head of the ZEW Research Group "Competition and Regulation", discussed the issue from the viewpoint of competition. According to recent empirical studies, effective competition policies have proven to have a considerable impact on total factor productivity (TFP) growth in highly developed OECD countries. "By defining and monitoring regulations, competition policy-makers seek to deter firms from engaging in anti-competitive behaviour," said Hüschelrath, emphasising the importance of competition authorities. Cartels frequently cause substantial productivity losses. A glance at the productivity of public bodies in terms of cartel prosecutions, merger controls and the granting of state aid shows that competition authorities are constantly trying to prevent productivity losses. "Competition policy developed significantly in the past few years, towards being much more efficient," noted Hüschelrath.<o:p></o:p>

Professor Irene Bertschek, head of ZEW Research Department "Information and Communication Technologies", explained why digital change is often seen as a key to solving current productivity issues. "It is widely acknowledged that digitalisation is a key driver for productivity growth," said Bertschek, "There are, however, differences within and between the various sectors in terms of technological progress and investment levels. For instance, there are still companies across all sectors that do not provide their employees with mobile internet access. At the same time, research findings suggest that ICT investments are crucial for productivity growth. "Technology alone does not suffice," said Bertschek, "It is also necessary to ensure that employees have access to further training programmes and that investment in research and development is being made. In this respect, complementary and intangible investments will come to play an increasingly important role.<o:p></o:p>

During the panel discussion, the participants asked about the methods ZEW uses to monitor productivity. Georg Licht explained that behavioural aspects play an increasingly important role in field experiments, while Irene Bertschek said that ZEW is currently developing methods to measure intangible investments.<o:p></o:p>