Productivity Challenges in Europe During the COVID-19 Pandemic
Keywords:Productivity, competitiveness, labor, growth, COVID-19
Productivity determines the competitiveness of an economy. High productivity implies low inputs for producing a given amount of output. This allows firms to offer their products and services at lower prices than firms in other regions and countries. In contrast, low productivity implies wasteful usage of labor, capital or other inputs to produce a certain output and leads to higher production costs and, ultimately, higher prices.
Many European countries are exhibiting a prolonged slowdown in productivity growth. When it comes to labor productivity, a key indicator, countries like France, Germany or Italy had annual growth rates between 3 and 9 percent until the mid-1970s. Since then, growth rates have declined substantially and are well below 2 percent since the year 2000. Explanations for this phenomenon range from a slowdown of technological progress and diffusion to a structural shift of economies towards lower productive services, restrained investment activity since the financial crisis and mere measurement difficulties. Some believe that the big productivity boost from digitization is yet to come.
The COVID-19 pandemic has brought unprecedented challenges to productivity across Europe. The pandemic has disrupted businesses, supply chains, and the labor market, resulting in reduced economic activity and an increase in unemployment. Some of the productivity challenges faced by Europe during the pandemic include remote work, supply chain disruptions, reduced consumer demand, increased sick leaves and many other problems that directly influence productivity during the COVID-19 pandemic.
COVID-19 pandemic has presented significant challenges to productivity across Europe. Businesses and governments must work together to find innovative solutions to overcome these challenges and help the European economy recover from the pandemic.
The purpose of the study is to evaluate the productivity issues in European countries during the COVID-19 pandemic.
Tasks of the research: 1) analyze literature about the main productivity determining factors; 2) determine main reasons for the productivity slowdown in the European countries during the pandemic; 2) Analyze government response policies related to COVID-19 pandemic and impact on the long-term productivity and competitiveness.
Research methods: Literature analysis, data analysis.
Albulescu, C. T., Drăghici, A., Fistiş, G. M., & Truşculescu, A. (2016). Does ISO 9001 Quality Certification Influence Labor Productivity in EU-27? Procedia - Social and Behavioral Sciences, 221, 278–286. https://doi.org/10.1016/j.sbspro.2016.05.116
Aldieri, L., Barra, C., Paolo Vinci, C., & Zotti, R. (2021). The joint impact of different types of innovation on firm’s productivity: evidence from Italy. Economics of Innovation and New Technology, 30(2), 151–182. https://doi.org/10.1080/10438599.2019.1685211
Capello, R., & Lenzi, C. (2015). Knowledge, Innovation and Productivity Gains across European Regions. Regional Studies, 49(11), 1788–1804. https://doi.org/10.1080/00343404.2014.917167
Cingano, F. (2014). Trends in Income Inequality and its Impact on Economic Growth. OECD Social, Employment and Migration Working Papers, 163. https://doi.org/10.1787/5jxrjncwxv6j-en
Dabla-Norris, E., Kochhar, K., Ricka, F., Suphaphiphat, N., & Tsounta, E. (2015). Causes and Consequences of Income Inequality: A Global Perspective. International Monetary Fund.
Duguleana, L., & Duguleana, C. (2016). Structural Aspects of the European Union Economy. European Research Studies Journal, XIX(1), 93–128.
Elnasri, A., & Fox, K. J. (2017). The contribution of research and innovation to productivity. Journal of Productivity Analysis, 47(3), 291–308. https://doi.org/10.1007/S11123-017-0503-9
European Commission. (2019). European Innovation Scoreboard 2019.
European Commission. (2021). Innovation Scoreboard 2021.
European Commission. (2022). European Innovation Scoreboard 2022. https://ec.europa.eu/newsroom/rtd/items/771124/en
Freimane, R., Priede, J., & Skapars, R. (2019). DYNAMICS OF REAL LABOUR PRODUCTIVITY AND REAL COMPENSATION IN LATVIA. NEW CHALLENGES OF ECONOMIC AND BUSINESS DEVELOPMENT - 2019: INCENTIVES SUSTAINABLE ECONOMIC GROWTH, 270–278.
Harada, T. (2015). Structural change and economic growth with relation-specific investment. Structural Change and Economic Dynamics, 32, 1–10. https://doi.org/10.1016/j.strueco.2014.12.002
Hartwig, J. (2015). Structural change, aggregate demand and employment dynamics in the OECD, 1970-2010. Structural Change and Economic Dynamics, 34, 36–45. https://doi.org/10.1016/j.strueco.2015.06.001
Hoeller, P., Joumard, I., & Koske, I. (2014). Reducing income inequality while boosting economic growth: Can it be done? Evidence from OECD countries. The Singapore Economic Review, 59. https://doi.org/10.1142/S0217590814500015
Ivanova, E. A., Mackay, M. M., Platonova, T. K., & Elagina, N. V. (2017). Theoretical Basis for Composition of Economic Strategy for Industry Development. European Research Studies Journal, XX(1), 246–256.
Jekabsone, S., & Skribane, I. (2018). Productivity Trap in Latvia. EUROPEAN INTEGRATION STUDIES, 12, 92–103. https://doi.org/10.5755/j01.eis.0.12.21871
Jekabsone, S., & Skribane, I. (2019). PRODUCTIVITY DYNAMICS AND THE PRODUCTIVITY TRAP: PROBLEMS AND SOLUTIONS IN LATVIA. NEW CHALLENGES OF ECONOMIC AND BUSINESS DEVELOPMENT - 2019: INCENTIVES SUSTAINABLE ECONOMIC GROWTH, 355–365.
Kijek, T., & Kijek, A. (2019). Is innovation the key to solving the productivity paradox? Journal of Innovation and Knowledge, 4(4), 219–225. https://doi.org/10.1016/J.JIK.2017.12.010
Kim, Y. E., & Loayza, N. V. (2019). Productivity Growth Patterns and Determinants across the World. http://www.worldbank.org/prwp.
Lopez-Rodriguez, J., & Martinez-Lopez, D. (2017). Looking beyond the R&D effects on innovation: The contribution of non-R&D activities to total factor productivity growth in the EU. Structural Change and Economic Dynamics, 40, 37–45. https://doi.org/10.1016/j.strueco.2016.11.002
Mahlberg, B., Luptacik, M., & Sahoo, B. K. (2011). Examining the drivers of total factor productivity change with an illustrative example of 14 EU countries. Ecological Economics, 72, 60–69. https://doi.org/10.1016/j.ecolecon.2011.10.001
Masso, J., & Vahter, P. (2012). The link between innovation and productivity in Estonia’s services sector. Service Industries Journal, 32(16), 2527–2541. https://doi.org/10.1080/02642069.2011.600444
Maudos, J., Pastor, J. M., & Serrano, L. (2008). Explaining the US-EU productivity growth gap: Structural change vs. intra-sectoral effect. Economics Letters, 100(2), 311–313. https://doi.org/10.1016/j.econlet.2008.02.017
Minniti, A., & Venturini, F. (2017). The long-run growth effects of R&D policy. Research Policy, 46(1), 316–326. https://doi.org/10.1016/j.respol.2016.11.006
Padilla-Pérez, R., & Villarreal, F. G. (2017). Structural change and productivity growth in Mexico, 1990–2014. Structural Change and Economic Dynamics, 41, 53–63. https://doi.org/10.1016/j.strueco.2017.02.002
Peters, B., Riley, R., Siedschlag, I., Vahter, P., & McQuinn, J. (2018). Internationalisation, innovation and productivity in services: evidence from Germany, Ireland and the United Kingdom. Review of World Economics, 154(3), 585–615. https://doi.org/10.1007/S10290-018-0313-9
Petersen, T. (2020). Can the Corona Pandemic boost Economic Productivity ? New Perspectives on Global & European Dynamics. https://globaleurope.eu/globalization/can-the-corona-pandemic-boost-economic-productivity/
Priede, J. (2011). Quality competitivenes of Latvia’s wood industry. European Integration Studies, 1(5), 229–236. https://doi.org/http://dx.doi.org/10.5755/j01.eis.0.5.1101
Priede, J. (2013). Quality Competitiveness of Latvia’s Food Industry in the Fish Products Group. Journal of Economics, Business and Management, 1(2). https://doi.org/10.7763/JOEBM.2013.V1.41
Priede, J., & Pereira, E. T. (2015). European Union’s Competitiveness and Export Performance in Context of EU – Russia Political and Economic Sanctions. Procedia - Social and Behavioral Sciences, 207, 680–689. https://doi.org/10.1016/j.sbspro.2015.10.138
Priede, J., & Skapars, R. (2012). Quality Competitiveness of Latvia’s Metal Industry in the Iron and Steel Product Groups. Economics and Management, 17(1), 202–208. https://doi.org/10.5755/j01.em.17.1.2268
Waheed, A. (2017). Innovation and Firm-Level Productivity: Evidence from Bangladesh. Developing Economies, 55(4), 290–314. https://doi.org/10.1111/DEVE.12152
World Economic Forum. (2019). The Global Competitiveness Report 2019. http://www3.weforum.org/docs/WEF_TheGlobalCompetitivenessReport2019.pdf
World Economic Forum. (2021). How COVID-19 has impacted economic growth.
Yörük, B. K., & Zaim, O. (2005). Productivity growth in OECD countries: A comparison with Malmquist indices. Journal of Comparative Economics, 33(2), 401–420. https://doi.org/10.1016/j.jce.2005.03.011
Zhu, F., Li, Q., Yang, S., & Balezentis, T. (2021). How ICT and R&D affect productivity? Firm level evidence for China. Economic Research-Ekonomska Istrazivanja , 34(1), 3468–3486. https://doi.org/10.1080/1331677X.2021.1875861