Oliver Holtemöller, I.1 Overall Productivity and Product Market Regulation in:

Oliver Holtemöller (Ed.)

How Can We Boost Competition in the Services Sector?, page 17 - 22

1. Edition 2017, ISBN print: 978-3-8487-4676-7, ISBN online: 978-3-8452-8902-1,

Bibliographic information
Introduction Overall Productivity and Product Market Regulation (Oliver Holtemöller) Professor Dr Oliver Holtemöller, Martin-Luther-University Halle-Witten‐ berg and Halle Institute for Economic Research (IWH) “How can we boost competition in the services sector?” is a topic that has been attracting the attention of the media, of politicians and of scientists for some time now. Productivity in the US and in Europe Source: Ameco The ultimate goal of boosting competition is to foster economic growth and, hence, welfare. Compared to the US, productivity growth has been I I.1 Figure 1.1: 17 rather weak in Germany and in other continental European countries in re‐ cent years (figure 1.1). A couple of studies have analyzed why productivity growth has been higher in the USA than in Europe. Van Ark, O’Mahony and Timmer (2008) study the period from 1995 until 2006, which is very interesting because the gap widens there, as figure 1.1 shows; more recently, it does not diverge so much. During that period between 1995 and 2006, produc‐ tivity grew in the USA by 2.3 percent, whilst in the EU-15 only by 1.5 percent. Van Ark et al. point primarily at the knowledge economy as the main source for the differences but also at the high level of regulation of labour and product markets. What does regulation of product markets mean? The OECD has made a suggestion for breaking down product market regulation into various cat‐ egories (figure 1.2). Product market regulation Source: Koske et al. (2015) The three categories are direct influence of the state on businesses, imped‐ iments to entrepreneurship and impediments to international trade and in‐ vestment. Overall, Germany exhibits a medium degree of product market regulation (figure 1.3). Figure 1.2: I Introduction 18 Product market regulation: international evidence Source: Data source: Koske et al. (2015), graph by IWH Professional services regulation Source: Data source: Koske et al. (2015), graph by IWH The UK and the USA have the lowest levels of regulation; however, the distance between Germany on the one hand and the UK and the USA on Figure 1.3: Figure 1.4: I.1 Overall Productivity and Product Market Regulation (Oliver Holtemöller) 19 the other hand is not particularly large. For services, though, the differ‐ ences are much bigger (figure 1.4). In the UK and in the USA, the extent of regulation in the services sec‐ tors is substantially lower than in Germany and in some other continental European countries. What explains the large difference? What can be done to improve flexibility in Germany? There are also other indicators which support the view that regulation in some special areas may contribute to low productivity growth. The ease of doing business indicator of the world bank, for example, reveals that Germany ranks only on mediocre places for the sub-indicators starting business, register property and pay taxes. All these factors play a role in explaining the substantially lower degree of firm dynamics in Europe compared to the USA. Firm dynamics in the US and in Europe Source: Bravo-Biosca (2011) Figure 1.5 shows the differences in the frequency distribution of firms be‐ tween the USA and Europe, sorted by shrinking, remaining static or ex‐ panding firms. In the USA, there are many firms that shrink, but there are also many being newly established and many expanding. In Europe, a lot of firms neither expand nor shrink, they are static. The more dynamic en‐ Figure 1.5: I Introduction 20 vironment in the USA may be supportive for innovations and therefore may be one piece in the productivity puzzle. The difference in productivity growth can mainly be attributed to the services sector for the period in which the difference in productivity be‐ tween the USA and Germany widens (figure 1.6). Sectoral contributions to labour productivity Source: Uppenberg (2011) Between 1995 and 2008, market services explain most of the gap in pro‐ ductivity growth. Against this background, it is important to better understand productivi‐ ty growth in the services sectors. More competition and more flexibility may be one way to increase productivity growth in the German services sectors. References Ark, B. van; O’Mahony, M.; Timmer, M. P. (2008): The Productivity Gap between Eu‐ rope and the United States: Trends and Causes, Journal of Economic Perspectives 22(1), 25-44 Bravo-Biosca, A. (2011): A look at business growth and contraction in Europe. Nesta Working Paper No. 11/02 Figure 1.6: I.1 Overall Productivity and Product Market Regulation (Oliver Holtemöller) 21 Koske, I.; Wanner, I.; Bitetti, R.; Barbiero, O. (2015): The 2013 Update of the OECD’s Database on Product Market Regulation: Policy Insights for OECD and Non-OECD Countries, OECD Economics Department Working Papers, No. 1200, OECD Pub‐ lishing Uppenberg, K. (2011): Economic Growth in the US and the EU: A Sectoral Decompo‐ sition, EIB Papers 16(1), 18-51 I Introduction 22

Chapter Preview



‘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


„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