Discussion paper

DP16187 Unraveling the Productivity Paradox: Evidence for Germany

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.

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Citation

Schmidt, C, L Feld, D Christofzik and S Elstner (2021), ‘DP16187 Unraveling the Productivity Paradox: Evidence for Germany‘, CEPR Discussion Paper No. 16187. CEPR Press, Paris & London. https://cepr.org/publications/dp16187