1. EU-KLEMS project: Progress in Economic Underpinnings and Measurement
Mary O’Mahony
King’s College London and ESCOE
Paper presented to the NTTS 2017 Satellite Event – Challenges in measuring productivity, growth and intangibles, Brussels, March

2. The Productivity Puzzle – a widespread problem
Labour productivity growth, % per annum
Source: EU KLEMS and The Conference Board

3. Understanding the productivity puzzle: the theoretical and empirical framework
Investigate from the production side
From the perspective of producers (firms)
Use of inputs and productivity in accounting for output changes
Using a production function framework
Focus on heterogeneous capital and labour
Needs to go below aggregate economy level
EU KLEMS provides industry accounts

4. The EU KLEMS project
Funded by the fifth framework programme March 2008 data release: Estimates of gross output, intermediate input, value added, hours worked, capital (ICT and non-ICT), labour composition and total factor productivity about 30 industries EU countries + US, Japan, Korea, Australia and Canada Subsequent updates: later time periods: to 2007, 2010 and now 2014 (for a limited set of countries), more industry detail on value added and hours worked, change to NACE rev 2… Linked to other countries through World KLEMS Update to 2015 (funded by DG ECFIN) will be released later this year and will include all EU-28

5. The EU KLEMS project
Most data come from National Accounts Supplemented by other sources such as labour force and business surveys Some countries now produce their own KLEMS estimates (Belgium, Denmark, Finland, Italy, the Netherlands and the UK) Others experimenting (Ireland, Sweden….) But focus on value added measures Needs more on intermediate inputs – integration within a supply use framework The database has been used extensively in research and to inform policy examples include impacts of regulation, innovation and technology on productivity growth, determinants of innovation, wage inequality, skill biased technical progress and the decline in labour’s share, energy intensity and climate change, housing prices….

6. The EU KLEMS project: some recent results: Comparing with , the growth in labour productivity, capital per hour worked and TFP decline in many EU countries. Investment is important but not the whole story.

7. Large TFP declines in Manufacturing

8. Similar patterns across a range of service sectors: E. G
Similar patterns across a range of service sectors: E.G. Wholesale and Retail trade

9. Similar patterns across a range of service sectors: Information and Communication

10. Financial Services: more mixed results. Affected by measurement issues?

11. PROFESSIONAL, SCIENTIFIC, TECHNICAL, not such an obvious decline in TFP growth. Likely severely affected by measurement issues

12. Conclusions
Is the productivity puzzle due to: Long adjustment lags following the financial crisis (cyclical) Trend decline in productivity growth Answers require good quality, timely, internationally comparable, growth accounts The upcoming version of EU KLEMS (to 2015) will go some way towards providing an answer Further work is needed on the database Improvements in some measures of outputs and inputs, e.g. better deflators for services output Integration with other databases, especially intangibles and trade flow data Requires collaboration with NSIs but also informs them