"Science, Research and Innovation Performance of the EU 2018" Innovation, Productivity, Jobs and Inequality ERAC Workshop Brussels, 4 October 2017 DG RTD, Unit A4
Key messages More robust economic growth will require boosting productivity growth that relies on R&I Innovation acceleration and notably innovation diffusion are crucial to boost productivity growth Digitalisation and other long term socio-economic forces are changing the nature and impacts of innovation New digital technologies create new and better jobs, but also disrupt existing ones, creating opportunities and risks Ensuring a broad participation in innovation is key to avoid raising inequality 2
South Korea Japan United States EU(3) Ireland Romania Poland Bulgaria Slovakia Malta Lithuania Latvia Spain Estonia Czech Republic Portugal Austria Denmark Germany France Sweden Hungary Cyprus Netherlands Croatia Belgium Slovenia United Kingdom Compound annual real growth (%), 2007- Italy Luxembourg Finland Greece Iceland Switzerland Norway Economic growth is back, but slow labour productivity dynamics hinder its robustness Labour productivity (GDP per hour worked (1) ) - compound annual real growth, 2007-2016 5 4.6 4 3.5 3 2.9 2.6 2.5 2016 (2) 1 0 0.9 0.8 0.8 1.9 1.8 1.8 1.4 1.3 1.1 0.8 0.8 0.7 0.7 0.7 0.6 0.5 0.4 0.4 0.4 0.4 0.3 0.1 0.1 0.5 0.2 2 0.0 0.0-0.1-0.2-1 -1.2-2 Source: DG Research and Innovation - Unit for the Analysis and Monitoring of National Research and Innovation Policies Data: Eurostat, DG Economic and Financial Affairs, Notes: (1) GDP per hour worked in PPS at 2010 prices and exchange rates. (2) NO, IS: 2007-2014; CH, JP, KR: 2007-2015; HR: 2008-2016. (3) EU: Croatia is not included. 3
and affects Europe's ability to bridge the productivity gap against the US The gap in real labour productivity (GDP per hour worked (1) ) between each country and the United States, 2016-23.8-18.1-18.6-18.7-19.7-21.6-22.9-24.0-24.3-25.0-25.1-25.7-26.5-31.3-27.7-27.3-16.1-16.8-11.4-0.8-4.9-2.3-0.8-6.7-9.0-11.6-11.7-11.8-4.8 1.3 0.4 11.3 13.0 15.9-35 -30-25 -20-15 -10-5 0 5 10 15 20 Gap with the United States in real labour productivity, 2016 (2) EU Japan South Korea Luxembourg Ireland Belgium Denmark France Netherlands Germany Sweden Austria Finland United Kingdom Italy Spain Slovakia Malta Cyprus Slovenia Czech Republic Portugal Hungary Greece Estonia Lithuania Poland Croatia Romania Latvia Bulgaria Norway Switzerland Iceland Source: DG Research and Innovation - Unit for the Analysis and Monitoring of National Research and Innovation Policies Data: Eurostat, DG Economic and Financial Affairs, Notes: (1) GDP per hour worked in PPS at 2010 prices and exchange rates. (2) IS, NO: 2014; CH, JP, KR: 2015. 4
TFP - compound annual growth (%), 2007-2016 Low labour productivity growth is mainly driven by sluggish TFP growth Total factor productivity - compound annual growth, 2007-2016 4.0 3.0 2.9 2.0 1.3 1.0 0.7 1.0 0.0 0.5 0.4 0.0 0.5 0.4 0.3 0.2 0.1 0.1 0.1 0.1 0.0 0.5 0.1-1.0-2.0-3.0 0.0 0.0 0.0-0.1-0.1-0.3-0.4-0.4-0.6-0.8-0.8-1.3-1.4-1.6-2.1-1.1 Source: DG Research and Innovation - Unit for the Analysis and Monitoring of National Research and Innovation Policies Data: European Commission - DG Economic and Financial Affairs 5
Percentage points even if TFP is the main source of future economic growth for advanced economies Contribution to growth in GDP per capita, 2000-2060 (annual average) 8 7 Capital MFP Human capital Labour GDP 2000-2010 2010-2020 2020-2030 2030-2040 2040-2050 2050-2060 6 5 4 3 2 1 0-1 non- G20 non- G20 non- G20 non- G20 non- G20 non- G20 Source: Braconier H, Nicoletti G and Westmore B, (2014), Note: (1) The non- G20 countries are Argentina, Brazil, China, India, Indonesia, Russian Federation, Saudi Arabia and South Africa. 6
For highly prosperous economies, R&I is the key factor behind TFP growth 3.5 Business R&D intensity, 2000 versus compound annual growth of total factor productivity, 2000-2016 Countries in pink had a GDP per head of population of less than 25000 PPS (current) in 2016 Business R&D intensity, 2000 (1) SE 3.0 2.5 FI JP 2.0 US (2) DE CH LU DK IS 1.5 AT BE FR EU UK 1.0 NO NL SI IE CZ IT ES 0.5 HR SK EL PT HU EE MT PL RO CY BG LT LV 0.0-1.0-0.5 0.0 0.5 1.0 1.5 2.0 2.5 3.0 Total Factor Productivity - compound annual growth (%), 2000-2016 Source: DG Research and Innovation - Unit for the Analysis and Monitoring of National Research and Innovation Policies Data: European Commission - DG Economic and Financial Affairs Notes: (1) SE, NO: 2001; HR, AT: 2002; MT: 2004. (2) US: Business expenditure on R&D (BERD) does not include most or all capital expenditure. 7
but long-term socio-economic forces are changing the nature of innovation 8
in terms of pace, complexity and impacts... Increased complexity of the innovation process Increasingly converging technologies and sectors Role for off-the-shelf technologies Concentration of benefits in superstar firms "Winner takes most" strategies Increased concentration in industries Very rapid innovation pace change In a decade, only 3 companies remain in top-10 by market capitalisation Top-4 most capitalised companies: 1-Apple (33) 2- Alphabet (22); 3- Microsoft (6); 4- Amazon (NA) 9
that result in innovation divergence across firms, affecting the innovation diffusion Non-financial business services Manufacturing Notes: The global frontier is measured by the average of log labour productivity for the top 5% of companies with the highest productivity levels within each 2-digit industry. Laggards capture the average log Source: calculation based on Orbis database of Bureau van Dijk productivity of all the other firms. Unweighted averages across 2-digit industries are shown for manufacturing and services, normalised to 0 in the starting year. The vertical axes represent log differences from the starting year: for instance, the frontier in manufacturing has a value of about 0.3 in the final year, which corresponds to approximately 30% higher in productivity in 2013 compared to 2001. Source: Andrews et al. (2016). 10
R&I creates new and better jobs but can affect existing ones There is no overall job destruction in Europe, but labour markets are becoming polarised, putting pressure on wages and on inequality Source: European Commission- EPSC Data: estimates based on EU-LFS, Japanese Labour Force Survey, BLS Current Population Survey 11
such as medium skill jobs which are at high risk of automation Source: C. Frey, M. Osborne / Technological Forecasting & Social Change 114 (2017) 254 280. [9] 12
with a different distribution of job at risk across countries Source: (Employment Outlook 2016-2016) 13
changing the nature of jobs and related skill segments, increasing wage polarisation Wage premium for high skilled large in Germany, Belgium and Austria more pronounced wage decrease for the medium than high skilled in US and UK Source: DG Research and Innovation - Unit for the Analysis and Monitoring of National Research and Innovation Policies 14
Declining labour shares observed, with stark differences across Member States, Reflection of different market conditions and institutional set ups, bargaining structures and/or effects of technological change given the economic structure of a country Source: DG Research and Innovation - Unit for the Analysis and Monitoring of National Research and Innovation Policies 15
leading to rising income inequality in the United States and the European Union Source: DG Research and Innovation - Unit for the Analysis and Monitoring of National Research and Innovation Policies Data: Income Distribution Database 16