Working Paper: NBER ID: w10310
Authors: Olivier Blanchard
Abstract: After three years of near stagnation, the mood in Europe is definitely gloomy. Many doubt that the European model has a future. In this paper, I argue that things are not so bad, and there is room for optimism. Over the last thirty years, productivity growth has been much higher in Europe than in the United States. Productivity levels are roughly similar in the European Union and in the United States today. The main difference is that Europe has used some of the increase in productivity to increase leisure rather than income, while the U.S. has done the opposite. Turning to the present, a deep and wide ranging reform process is taking place. This reform process is driven by reforms in financial and product markets. Reforms in those markets are in turn putting pressure for reform in the labor market. Reform in the labor market will eventually take place, but not overnight and not without political tensions. These tensions have dominated and will continue to dominate the news; but they are a symptom of change, not a reflection of immobility.
Keywords: Europe; productivity; economic reform
JEL Codes: E6; I5; J6
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Financial and product market reforms (G18) | Labor market reforms (J48) |
| Labor market reforms (J48) | Reduction in unemployment (J68) |
| Labor market reforms (J48) | Increase in real wages (J39) |
| Decline in hours worked (J22) | Increased leisure over income (J29) |
| Changes in market structures (D49) | Labor market adjustments (J48) |