Labor Productivity in France: Is the Slowdown of its Growth Inevitable or are there Levers to fight it?

Abstract

Labour productivity in most advanced countries has slowed in successive stages since the 1970’s and, after the 2008 crisis, it has reached its lowest level since World War II. Here we analyze the trend evolution of the aggregate labor productivity per hour worked in France, over the last four decades, with two main questions. 1) Is the slowdown of labor productivity growth a process which began far before the Great Recession and should it continue with just temporary yet persistent effects of the 2008 crisis and 2) are there levers to reverse the current trend? We proceed in two steps. First, the trend (log) productivity is described as a deterministic piecewise linear function of time, involving so-called structural breaks, and, second, without breaks, as a linear function of fundamentals derived from an augmented growth model including Human capital. We propose a thorough econometric investigation with multiple robustness analyses involving sector-specific analyses. The structural specifica-tion we retain is able to explain the evolution of labor productivity over the last four decades. The accumulation of human capital has been the main driver of productivity growth over the period of interest while France is close to the technological frontier

Keywords

• labor productivity
• trend component
• structural breaks
• long run target
• augmented growth model with human capital