The Great Recession: Sector, Efficiency, Technological innovation, Capital deepening, and Labour mobility

Prof. Romain Houssa, University of Namur

In this paper, we present a new evidence on the sources of aggregate labor productivity in OECD economies, analysing data over three periods: (i) years before (2002-2006), (ii) leading to (2006-2009), and (iii) recovery from the global financial crisis (GFC) (2009;-2014). First, we decompose aggregate productivity growth into components attributable to intra-sectoral productivity growth effect (within component) and effect of employment share reallocation that is split into the static and dynamic components. We use data for 10 economic sectors from 26 countries. We confirm that the within component is the key driver of labor productivity growth in good years and in the recovery period. However, we also find that the within component is the major culprit in years leading to GFC. Second, we therefore study the factors that affect the within component by employing a non-parametric production frontier approach to conceptually decompose the within component into components attributable to efficiency change, technological change, and capital deepening. The retrenchment in technological progress followed by efficiency losses play, on average, the most important role in explaining the collapse of productivity growth in years leading to GFC. Efficiency losses were highest in ICT, manufacturing, construction, utilities, and wholesale. In the recovery period, technological progress has played the largest role in manufacturing, finance, information, and wholesale. In particular, the rate of technological progress in manufacturing has surpassed its level in the pre-crisis period. Productivity is, however, still mired by efficiency losses with exceptions of the agriculture and construction sectors. Capital deepening kept on driving up productivity in all periods. Especially, capital deepening contribution has been especially prominent in the recovery period. To our knowledge, this is the first study that uses sectoral data on capital to analyze the role of sectoral dynamics in terms of efficiency, technology, and capital deepening in aggregate productivity growth. Doing so allows to identify the relative role of these three factors to productivity growth.

About the speaker

Romain Houssa is a professor of economics at the University of Namur where he undertakes his research within the Institute of Development Finance and Public Policies (DeFiPP), including the  Center for Research in the Economics of Development (CRED) and the Center for Research in Finance and Management (CeReFiM). His research interests include the areas of applied macroeconomics, international macroeconomics, monetary economics, and development economics. Most of his work has been concerned with understanding the causes and welfare implications of macroeconomics as well as the micro and macroeconomic aspects of economic growth. His research appeared in Journal of Development Economics, European Economic Review, World Development, Ecological Economics, Journal of Productivity Analysis. Romain holds a PhD in economics from KU Leuven in 2008.

Venue: via Zoom (please contact us at for the Zoom link)

Date: 27 May 2021

Time: 12:00 - 13:00  CEST