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Oliver Holtemöller (Ed.)

How Can We Boost Competition in the Services Sector?, page 1 - 15

1. Edition 2017, ISBN print: 978-3-8487-4676-7, ISBN online: 978-3-8452-8902-1, https://doi.org/10.5771/9783845289021-1

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How Can We Boost Competition in the Services Sector? Oliver Holtemöller [ed.] How Can We Boost Competition in the Services Sector? Oliver Holtemöller [ed.] The Deutsche Nationalbibliothek lists this publication in the Deutsche Nationalbibliografie; detailed bibliographic data are available on the Internet at http://dnb.d-nb.de ISBN 978-3-8487-4676-7 (Print) 978-3-8452-8902-1 (ePDF) British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library. ISBN 978-3-8487-4676-7 (Print) 978-3-8452-8902-1 (ePDF) Library of Congress Cataloging-in-Publication Data Holtemöller, Oliver How Can We Boost Competition in the Services Sector? Oliver Holtemöller (ed.) 270 p. Includes bibliographic references. ISBN 978-3-8487-4676-7 (Print) 978-3-8452-8902-1 (ePDF) 1st Edition 2017 © Nomos Verlagsgesellschaft, Baden-Baden, Germany 2017. Printed and bound in Germany. This work is subject to copyright. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or any information storage or retrieval system, without prior permission in writing from the publishers. Under § 54 of the German Copyright Law where copies are made for other than private use a fee is payable to “Verwertungs gesellschaft Wort”, Munich. No responsibility for loss caused to any individual or organization acting on or refraining from action as a result of the material in this publication can be accepted by Nomos or the editor. Table of Contents List of Figures 7 List of Tables 11 Preface 15 IntroductionI 17 Overall Productivity and Product Market Regulation (Oliver Holtemöller) I.1 17 Competition in the Services Sector (Richard Kühnel)I.2 23 The Practical ViewII 25 Brigitte ZypriesII.1 25 Joaquim Nunes de AlmeidaII.2 30 Dirk PaligeII.3 36 Which Structural Reforms for Europe? (Henrik Enderlein)III 43 Past Reforms in the Services Sector and their EffectsIV 87 Introduction (Stefan Profit)IV.1 87 Entry regulation and entrepreneurship: a natural experiment in German craftsmanship (Davud Rostam- Afschar) IV.2 89 Structural Reforms in Transportations: Dynamics and Sectorial Spillovers (Paolo Mengano) IV.3 134 DiscussionIV.4 170 5 How to Assess the Economic Impact of Regulation – Recent Developments in Europe and Germany and Outlook to the Next Step V 177 Services liberalisation in Germany: Overview and the potential of deregulation (Oliver Arentz) V.1 177 Economic impact of competition-friendly deregulation in Germany's professional services (Erik Canton) V.2 241 Discussion (Jochen Andritzky)V.3 264 Conclusions (Oliver Holtemöller)VI 269 Table of Contents 6 List of Figures Figure 1.1: Productivity in the US and in Europe 17 Figure 1.2: Product market regulation 18 Figure 1.3: Product market regulation: international evidence 19 Figure 1.4: Professional services regulation 19 Figure 1.5: Firm dynamics in the US and in Europe 20 Figure 1.6: Sectoral contributions to labour productivity 21 Figure 3.1: Lost years for growth in advanced economies 46 Figure 3.2: In some euro-area economies recovery has come to a halt 47 Figure 3.3: Sectoral divergence in wage growth in the euro area 50 Figure 3.4: Counting key reform recommendations: in total more than 230 54 Figure 3.5: Consensus on reform priorities for euro-area countries is less than 40% 55 Figure 3.6: There were three times as many country recommendations for labour markets than product markets 56 Figure 3.7A: Consensus reform lists: unfinished business and next generation 57 Figure 3.7B: Consensus reform lists: where the countries are 57 Figure 4.1.1: Progress in structural reforms in Germany 87 Figure 4.1.2: National regulation of specific professions 88 7 Figure 4.2.1: Self-employment in treatment groups and control group: number of self-employed craftsmen in B1, A1, A2, and AC occupations in thousands 96 Figure 4.2.2: Self-employment rates in treatment groups and control group: percentage share of self-employed among B1, A1, A2, and AC occupations 97 Figure 4.2.3: Craftsmanship and entrepreneurship policies: total, unsubsidized, and German self-employed craftsmanship in thousands 101 Figure 4.2.4: Entries into and exits from self-employment and their difference among B1-occupations, left ordinate number in thousands, right growth rate in percent 107 Figure 4.2.5: Entries into and exits from self-employment and their difference among AC-occupations, left ordinate number in thousands, right growth rate in percent 107 Figure 4.2.6: Entries into and exits from self-employment and their difference among A2-occupations, left ordinate number in thousands, right growth rate in percent 108 Figure 4.2.7: Entries into and exits from self-employment and their difference among A1-occupations, left ordinate number in thousands, right growth rate in percent 109 Figure 4.3.1: Composition of indicator of regulations 153 Figure 4.3.2: The dynamics of inputs and output 155 Figure 4.3.3: The dynamics of labour costs 156 Figure 4.3.4: The dynamics of productivity 158 Figure 4.3.5: The dynamics of resources allocation 159 List of Figures 8 Figure 4.3.6: The dynamics of competition 161 Figure 4.3.7: The dynamics of inputs and output 163 Figure 4.3.8: The dynamics of labour costs 164 Figure 4.3.9: The dynamics of productivity 164 Figure 4.3.10: The dynamics of resources allocation 165 Figure 4.3.11: The dynamics of concentration 165 Figure 4.3.12: Duration of policymakers’ mandates 166 Figure 5.1.1: Proportional use of domestic services 181 Figure 5.1.2: Share of gross value added by economic sectors in Germany 182 Figure 5.1.3: Increase of the gross value added and of employment in the domestic services sectors 183 Figure 5.1.4: Gross value added and net operating surplus in the area of business services 184 Figure 5.1.5: Export ratio in the sector of business services 186 Figure 5.1.6: The manufacturing sectors proportion of the gross value added by international comparison 187 Figure 5.1.7: Services sector employees in the German manufacturing sector 189 Figure 5.1.8: Intermediate inputs purchased by the manufacturing sector 190 Figure 5.1.9: Business services purchase by the manufacturing sector 191 Figure 5.1.10: Value based proportion of intermediate inputs from the services sector for the production of another value unit of domestic manufacturing production 192 List of Figures 9 Figure 5.1.11: Intermediate inputs purchased by the services sector 193 Figure 5.1.12: OECD Indicator on regulation in professional business services 195 Figure 5.1.13: OECD Indicator on regulation for accounting, legal, architecture and engineering 196 Figure 5.1.14: OECD Services Trade Restrictiveness Index 197 Figure 5.1.15: Net operating surpluses in selected sectors of the economy 198 Figure 5.1.B1: Net operating surplus in the area of business services in an international comparison 236 Figure 5.1.B2: Gross operating surplus in the area of domestic business services 237 Figure 5.2.1: Mark-ups (MUP) in professional services in 2013 245 Figure 5.2.2: Labour productivity and employment share per firm size class in Germany's and UK's legal services 247 Figure 5.2.3: AE in professional services (2014) 248 Figure 5.2.4: PMR indicator in professional services (2013) 251 Figure 5.2.5: PMR indicator in professional services (total) over time, UK and Germany 251 Figure 5.3.1: Employment and productivity 265 Figure 5.3.2: Value added in selected industries 266 List of Figures 10 List of Tables Table 3.1: The top three reform priorities for euro-area countries 67 Table 3.A1: Overview of country reform recommendations 68 Table 3.A2: Overview of euro-area reform recommendations 78 Table 3.A3: Reform priorities by countries 79 Table 4.2.1: The natural experiment 93 Table 4.2.2: Weighted averages by treatment and control groups in pre- and post-reform (2002–2004; 2005–2009) samples 110 Table 4.2.3: Estimation results of self-employment state and transition probabilities 113 Table 4.2.4: Probabilities of entry into self-employment (in %): difference-in-differences 115 Table 4.2.5: Probabilities of exit from self-employment (in %): difference-in-differences 117 Table 4.2.6: Probabilities of being self-employed (in %): difference-in-differences 119 Table 4.2.7: Treatment effects on entry into self-employment and on the share of self-employed for subgroups (in %): difference-in-differences 121 Table 4.2.8: Stock of businesses at the end of the year 126 Table 4.2.9: Self-employment rates in treatment groups and control group by year 127 11 Table 4.2.10: Estimation results of self-employment state and transition probabilities 128 Table 4.2.11: Timing sensitivity: Logit estimation results of selfemployment state probabilities 129 Table 4.2.12: Robustness: Logit estimation results of selfemployment state probabilities 130 Table 5.1.1: Effects on whole economy 207 Table 5.1.2: Effects on manufacturing sector 207 Table 5.1.3: Econometric estimation results for different deregulation scenarios 220 Table 5.1.A1a: Base model OECD Indicator, effects on valueadded in whole economy 226 Table 5.1.A1b: Base model OECD Indicator, effects on valueadded in manufacturing sector 227 Table 5.1.A2a: OECD Indicator & control for output, effects on value-added in whole economy 228 Table 5.1.A2b: OECD Indicator & control for output, effects on value-added in manufacturing sector 228 Table 5.1.A3a: Base model net surplus, effects on value-added in whole economy 229 Table 5.1.A3b: Base model net surplus, effects on value-added in manufacturing sector 230 Table 5.1.A4a: Net surplus & control for output, effects on valueadded in whole economy 230 Table 5.1.A4b: Net surplus & control for output, effects on valueadded in manufacturing sector 231 List of Tables 12 Table 5.1.A5a: Approach one: effects of hypothetical reductions in regulation in the production sector NACE 74 Rev. 1.1 “other business activities” on value-added, linear approximation based on the estimation results of the models A2a and A2b 233 Table 5.1.A5b: Approach two: effects of hypothetical reductions in regulation in the production sectors NACE M69 rev 2 “legal and accounting activities” and NACE M71 Rev. 2 “architectural and engineering activities” on value-added, linear approximation based on the estimation results of the models A2a and A2b 234 Table 5.2.1: Entry and conduct regulation indicators 249 Table 5.2.2: Summary statistics on entry and conduct regulation indicators for the four professions in the 19 EU countries covered by the OECD PMR 250 Table 5.2.3A: Mark-up reductions of a simulated reform of professional services in Germany (benchmark: UK) 253 Table 5.2.3B: Mark-up reductions of a simulated reform of professional services in Germany (benchmark: EU average) 254 Table 5.2.4: Examples of differences in regulatory framework between Germany and the UK in legal activities 254 Table 5.2.5A: Productivity gains of a simulated reform of professional services in Germany (benchmark: UK) 256 Table 5.2.5B: Productivity gains of a simulated reform of professional services in Germany (benchmark: EU average) 256 Table 5.2.6: Productivity improvement and mark-up reduction spread across tradable and non-tradable sectors 259 List of Tables 13 Table 5.2.7: Productivity improvement spread across tradable and non-tradable sectors 259 Table 5.2.8: Mark-up reduction spread across tradable and nontradable sectors 260 List of Tables 14 Preface This book summarizes the results of the conference “How can we boost competition in the services sector?” that took place on July 6, 2016 in Berlin. The conference was organized by the Halle Institute for Economic Research (IWH) on behalf of the Representation of the European Com‐ mission in Germany. Productivity growth in recent years has been rather weak in Germany and also in other continental European countries. Barriers to entry in some services sectors may be one factor explaining the productivity gap be‐ tween Germany and the USA, for example. The European Commission has been hinting at this point for several years, and there have been al‐ ready some reforms in Germany aiming at lowering barriers to entry in some services sectors. At the conference “How can we boost competition in the services sector?” reforms in the services sectors have been discussed from various perspectives. The book consists of six parts. After an introduction in part I, part II is devoted to the practical view on service sector reforms. It documents the contributions of representatives of the German Government, the European Commission, and the German Confederation of Skilled Crafts. In part III, an overview of the European economic reform agenda and the role of ser‐ vice sector reforms within the general agenda is given. Part IV contains contributions on past reforms in Germany and their economic effects. Part V consists of contributions that focus on expected effects of potential fu‐ ture reforms. Finally, part VI concludes. Many persons have helped to make the conference a success. I am grateful to Rahel Künkele, Stefanie Müller and Felix Pohle for their orga‐ nizational work, and I thank Andreas Schmalzbauer for his effort in putting together the individual contributions in one coherent manuscript. Finally, the financial support by the Representative of the European Com‐ mission in Germany is gratefully acknowledged. Of course, I am responsi‐ ble for all remaining errors and shortcomings of this book. Berlin, July 6, 2016 Oliver Holtemöller 15

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Abstract

‘How Can We Boost Competition in the Services Sector?’ is a key question in the process of creating a more effi-cient economic environment in Germany. This book contains a collection of conference contributions on service sector reforms from members of academic institutions, ministries, the EU Commission and other organisations. The conference consisted of a keynote on the importance and implementation of structural reforms in Europe and two panels that dealt with the evaluation of past reforms in the services sector and the potential scope and effects of further reforms.

Since the 1990s, productivity growth in Germany and other Member States of the European Union has been significantly lower than in the US. The development of productivity growth in the services sector is estimated to account for two thirds of this widening gap. The European Commission advocated reforms in the services sector in its country-specific recommendations for Germany. At a conference in Berlin in July 2016, experts from various fields presented and discussed studies on service sector reforms.

With contributions by

Oliver Holtemöller, Brigitte Zypries, Joaquim Nunes de Almeida, Dirk Palige, Henrik Enderlein, Stefan Profit, Davud Rostam-Afschar, Paolo Mengano, Oliver Arentz, Erik Canton, Jochen Andritzky

Zusammenfassung

„Wie können wir den Wettbewerb im Dienstleistungssektor stärken?“ Dies ist eine Schlüsselfrage für eine größere Leistungsfähigkeit des ökonomischen Umfelds in Deutschland. Dieses Buch versammelt Konferenzbeiträge von Mitgliedern wissenschaftlicher Einrichtungen, von Ministerien, der EU-Kommission und anderen Organisationen zu Reformen im Dienstleistungssektor. Die Konferenz umfasste einen Eröffnungsvortrag zur Bedeutung und Durchführung von Strukturreformen in Europa und zwei Gesprächsforen zur Bewertung vergangener Reformen im Dienstleistungssektor und zur möglichen Reichweite sowie zu den möglichen Auswirkungen weiterer Reformen.

Die Zunahme der Produktivität ist seit den 1990er Jahren sowohl in Deutschland als auch in anderen Ländern der Europäischen Union deutlich geringer als in den USA. Es wird geschätzt, dass die Entwicklung des Produktivitätszuwachses im Dienstleistungssektor für zwei Drittel dieses zunehmenden Abstandes verantwortlich ist. Die Europäische Kommission spricht sich in ihren länderspezifischen Empfehlungen zu Deutschland für Reformen in diesem Sektor aus. Auf einer Konferenz im Juli 2016 in Berlin stellten Experten aus unterschiedlichen Bereichen Studien zu solchen Reformen vor und diskutierten deren Ergebnisse.

Mit Beiträgen von

Oliver Holtemöller, Brigitte Zypries, Joaquim Nunes de Almeida, Dirk Palige, Henrik Enderlein, Stefan Profit, Davud Rostam-Afschar, Paolo Mengano, Oliver Arentz, Erik Canton, Jochen Andritzky