Study Guide - World Model United Nations

the latter half of the 1990s and throughout the 2000s
European Union Member States reported markedly
different productivity levels.
Breaking Down the Productivity Lag
The European productivity crisis, first evident
in 1995, can be attributed to numerous socioeconomic
trends ranging from inefficient market
integration and a slowdown in innovation, to a labor
market slowdown. The problem of below average
productivity is particularly pronounced in the service
sector. In 2004, the European Commission released a
working paper evaluating service market integration
and its impact of the European economy. The
A report by Robert Inklaar, Marcel P.
Timmer and Bart van Ark evaluates
growth differences rather than policy
mandates in regards to ICT. What they
EU Member States. http://www.ce-authorizedrepresentative.eu/
find is that the inefficient development
of information and communication
Commission came to the conclusion that barriers in
technologies contributed to labor productivity
the service industry in the Internal Market, stemming
growth. “On average, over all countries, the ICT
from cross-border barriers, have a negative effect of
investment to value added ratio increased from
competitive performance. In the European Union,
3.9% during 1980–1995 to 4.9% during 1995–2000.”
market services account for approximately 53.66%
In other words, productivity gains across Europe
of the GDP. In 2000, 86% of EU firm population
are closely related to the use and diffusion of ICT.
constituted service providers and these numbers
Namely, several economists have found that the
underestimate the role of services because they do not
productivity gap results from numerous factors such
distinguish between primary and secondary sectors.
as new technologies, economies of scale, managerial
Although the European service market accounts for
skill, and changes in the organization of production.
many jobs, because of the complex and intangible
The multifactor productivity lag, according to
nature of services, the provisions of services if often
various papers, has occurred because Europe has
subject to complex rules. At the same time, a wide
restrictive regulations that limit the productivity of
Harvard WorldMUN 2012
divergence between the rules of Member States renders
cross-border service activity inefficiently costly.
Indeed, three authors, Robert Inklaar, Marcel P.
Timmer and Bart van Ark, show that while investment
in physical and human capital may account for a
substantial portion of labor productivity growth in
market services, cross-European differences in labor
productivity growth are mainly due to technology
inefficiency. That is, some political scientists have
found that policies and institutions, which facilitated
the imitation of technologies in the past, are no longer
well-suited for growth close to the technological
frontier. Information and communication technologies
(ICT) are an important complement
to research and development. ICT is a
significant contributor to productivity
growth because it enables better
information processing, and thus
reduces co-ordination costs that are
detrimental in decentralized economies
such as Europe’s. For instance, enhanced
information and communication
technology improves the production
and distribution of inventory across
countries.
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