STRUCTURAL CHANGES AND LABOR PRODUCTIVITY SLOWDOWNIN THE EURO AREA

Slow productivity growth has plagued the euro area since the mid-1990s. That is particularly striking in view of the large productivity gains in the United States during the same period. This paper shows that the deceleration in labor productivity in the euro area was caused by structural changes in wage formation that have affected the relative price of la-bor, increased the labor intensity of growth, and, thus, reduced the rate of capital deepening. Techno-logical shocks seem to have played a minor role in explaining this deceleration. This is a general eco-nomic effect that may surface in other countries as they fi ght to lower unemployment rates.