DP16187 Unraveling the Productivity Paradox: Evidence for Germany

Author(s): Desiree Christofzik, Steffen Elstner, Lars P Feld, Christoph M Schmidt
Publication Date: May 2021
Keyword(s): Digitization, labor productivity, purified TFP, Structural VARs, technology shocks
JEL(s): C32, E24, O30, O40
Programme Areas: Macroeconomics and Growth
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=16187

Despite massive digitization efforts, the German economy has experienced a marked slowdown in its productivity growth. This paper empirically analyzes three prominent explanations for this development. First, using a novel quarterly utilization-adjusted total factor productivity measure for the German economy, we find that the slowdown in U.S. productivity growth since the mid-2000s had a negligible impact on the German productivity trend. Second, the structural shift towards services in the German economy explains a sizeable share of the weaker aggregate productivity gains. This transformation process is associated with a strong labor market performance. And third, employing a novel identification procedure, we show that technological progress in the German information and communication technology (ICT) producing sector stimulates aggregate employment growth. Its effect on aggregate productivity is, however, small.