Capital and Labour (Mis)Allocation in the Euro Area: Some Stylized Facts and Determinants

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. The paper is released in order to make the research of CompNet generally available, in preliminary form, to encourage comments and suggestions prior to final publication. The views expressed in the paper are the ones of the author(s) and do not necessarily reflect those of the ECB, the ESCB, and of other organisations associated with the Network. Terms of use: Documents in EconStor mayECB Working Paper 1981, November 2016 1 AbstractWe analyse the evolution of capital and labour (mis)allocation across firms in five euro-area countries (Belgium, France, Germany, Italy and Spain) and eight main sectors of the economy during the period 2002-2012. Three key stylized facts emerge. First, in all countries with the exception of Germany, capital allocation has worsened over time whereas the efficiency of labour reallocation has not changed significantly. Second, the observed increase in capital misallocation has been particularly severe in services as opposed to industry. Third, misallocation of both labour and capital dropped in all countries in 2009 and again for some country-sectors in 2011-2012. We next take stock of the possible drivers of input misallocation dynamics in a standard panel regression framework. Controlling for demand conditions and for the initial level of misallocation, heightened uncertainty, restrictive bank credit standards and tight product and labour market regulation are found to have boosted input misallocation, whereas the Great Recession per se exerted a cleansing effect. JEL codes: D24, D61, O47Keywords: total factor productivity, allocative efficiency, capital, labour, Great Recession ECB Working Paper 1981, November 2016 2 Non-technical summaryPoor total factor productivity (TFP) growth has been a key issue in the euro area over the last years and analysing its determinant is crucial from a policy perspective. At the sectorial level, TFP growth depends, almost equally, on technology improvements within firms (within-firm TFP growth) and on the efficiency with which production factors are (mis)-allocated across firms (between-firm TFP growth). The focus of this paper is on the latter and in particular on misallocation of labour and capital in eight macro-sectors (which include manufacturing and services) for five large euro-area countries (Belgium, France, Germany, Italy and Spain) during the period 2002-2012.Using the Hsieh and Klenow (2009) misallocation indicator, we uncover three stylized facts. First, in all countries, with the...

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