Employment and productivity growth in service and manufacturing sectors in France, Germany and the US

The growth patterns of service sectors across France, Germany, and the US exhibit striking differences. This can explain most of the well-known differences in aggregate growth rates of labour productivity and employment across these countries. Having confirmed this observation by a shift-share analysis of key indicators of growth, such as employment, labour productivity and capital, the paper analyses service sector growth in detail. It argues that a careful consideration of the forces of long-run growth may help to better explain differences in employment and productivity growth, in particular if combined with the standard approach, institutional peculiarities of labour markets. In this regard, it first presents new estimates of capital's contribution to labour productivity growth, which take into account skill-biased technological change. Second, it discusses evidence of catch-up growth in European service sectors relative to the US, and how this may affect employment growth in the presence of labour market rigidities.