Why is productivity growth in Europe so low?

Productivity is the crucial determinant of a country’s potential growth and economic wellbeing . Productivity also determine s its unemployment rate and the purchasing power of wage earners. By being a crucial factor for trend growth, productivity growth also determines the real equilibrium rate of an economy and the neutral rate for monetary policy. When trying to understand productivity growth , i t is important to distinguish two types of productivity: labour productivity , which concerns the efficiency of workers (and can be associated with hourly labour productivity) which will be the main focus in this report; and total factor productivity , which measures an increase in productivity that cannot be explained by either a change in labour or capital productivity (machines, tools). After catching up to the OECD average, the European Union enjoyed high productivity growth until the 1990s before taper ing o f f thereafter , stagnating from the 2010s onwards . In January 2020, productivity growth has reached particularly low levels , close to zero in the four large Eurozone countries. This Special Report aims to shed light on the across-the-board slowdown in productivity . Beyond a measurement problem, the decline in productivity has similar origins in the various countries : the rise of the service sector of the economy, the fall in interest rates, the competition within markets, the rise of short-term and low-paid employment contracts. That said, there are in some countries , such as France , idiosyncra tic developments that help explain low productivity gains. Examples include labour market rigidity and mismatches between labour force skills and available jobs .