Facts and Figures
Start date: 1st January 2019
Duration: 36 months
End date: 31st December 2021
Project coordinator: Halle Institute for Economic Research Halle (IWH), Germany
Partners: 9 partners with complementary expertise from 8 EU member countries (Belgium, Denmark, France, Germany, Hungary, Italy, the Netherlands, United Kingdom).
Project Team: View all partners on our Project Team page.
Total funding: €2,976,496.25
What is the project about?
The overarching goal of MICROPROD is to contribute to a greater understanding of the challenges brought about in Europe by the fourth industrial revolution and the associated ‘productivity puzzle’ in a context of globalisation and digitisation, and to provide alternative policy options to better address these challenges. We take a holistic view of the productivity puzzle, with the aim of understanding the microeconomic drivers behind it, as well as its macroeconomic implications for growth and cohesion in the European Union.
Why is the project important?
Labour productivity has slowed down atypically over the last decade or so in the developed world. That means that workers on average are not becoming more productive at quite the same speed as they used to. A similar picture in terms of how labour productivity has slowed down is seen for total factor productivity, i.e. when considering all factors of production, including capital. This is despite technological advancements continuing, and thus offering opportunities for innovation, as well as firms progressively integrating in global value chains, and therefore encouraging competition and gains in efficiency. All of these would suggest improvements in productivity vs. the observed slow down, a paradoxical situation that indicates how poor and incomplete our understanding of the underlying mechanisms at work is.
The consequences of this slow down are not innocuous. Contrary to a long-term trend, the current generation expects that future generations may earn less than they do, raising issues about intergenerational transfers and sustainability of welfare systems across generations. At the same time, the benefits of the small productivity improvements are accruing disproportionately to capital over labour. The distribution of wealth is therefore becoming increasingly and very visibly unequal, a fact that causes societal anxiety and unrest. Understanding why this occurs is crucial as we prepare for the post financial crisis era.
What is the foreseen impact of the project?
MICROPROD aims to understand the productivity puzzle and provide both new insights on the drivers of productivity and how to measure it. The results of the seven work packages will have the following direct impacts:
- New insights on the measurement of productivity
- Better evidence for policy-makers to understand the expected impact of trade shocks on firms and the economy in general
- New policy insights on the definition of a more efficient framework for supporting innovation thanks to the availability of individual firm-level data linked with ongoing technological developments (R&D activities and patents) across European countries
- A bridge between the microeconomic evidence with macroeconomic (general-equilibrium) policy discussions by connecting optimising behaviour of individual firms with the resource allocation in the factor market
- New insights on the drivers of productivity by exploiting the availability of detailed firm level data, linked with information on employees, intangibles, and other indicators of firms’ performance
- Better evidence for policy-makers to find the optimal macroeconomic policy mix
- Better evidence for policy-makers about what types of tangible and intangible assets are needed for successful integration and how to assist firms in acquiring them
- The identification of channels through which globalisation shocks affects labour market adjustments
- New policy insights to promote the distributional effects of the way production is organised in a digital and globalised world
Wider impacts of MICROPROD
- The data produced will live beyond the life-span of the project
- A new understanding of how inputs are combined to outputs, with novel methods
- A new definition of “potential output” in terms of an economy’s potential, to better measure it
- New insights on micro-founded production functions and how they can be used by macroeconomists to derive economy-wide production functions
MICROPROD will examine the empirical observation that productivity growth in the developed world has slowed down in the past decade despite both technological innovation continuing as well as greater openness to trade. Our objective is to provide explanations to this puzzle, improving our understanding of productivity and its drivers in general as well as the way that we measure it. In bringing together top micro and macro-economists from highly reputable research institutions in both the academic and policy communities with experts from statistical agencies, MICROPROD will provide the building blocks for next generation economic policy thinking and attempts to answer the following four set of questions:
- Do we measure productivity correctly?
- Do we understand all the mechanisms at work, from intangible investments to integrating into global value chains?
- What are the combined effects of globalisation and technological change in terms of their distributional impacts?
- Is the policy environment conducive to the new productivity environment?
WP1: Firm-level Data and Productivity Measurement
1.1: Exploring New Data: Linking new firm-level indicators, in collaboration with statistical offices. Includes firmlevel data on R&D and IPR and other firm-level measures of intangibles, and explores use of linked employee-employer data and information on firm-to-firm transactions.
1.2: Experimenting with new data in production function estimation
1.3: Innovations in modelling production and productivity
1.4: Diffusion of best practice: Harmonising, collecting and disseminating cross-country micro-aggregated data.
WP 2: Globalisation and Productivity
2.1: Investigating the structure of global value chains and how knowledge interacts with institutions
2.2: Investigating which firms and how can integrate into global value chains and what interactions take place within them
2.3: Analysing how increased competition resulting from globalisation affects productivity
WP 3: Innovation, Digitalisation, and Productivity
3.1: New stylised facts about ICT adoption and R&D activities
3.2: ICT and productivity
3.3: R&D and productivity
3.4: Endogeneity of ICT adoption and R&D activities
3.5: Policy implications of the findings of this work package
WP 4: Factor Relocation and Allocative Efficiency
4.1: Analysing the impact of financial institutions on factor reallocation and firm productivity
4.2: Analysing the impact of labour market frictions on firm dynamics
4.3: Investigating the role of international competition on resource allocation
WP 5: Distributional Consequences of Globalisation and Technical Progress
5.1: Identify to what extent globalisation affects income distribution across EU Member states and regions, through its effects on labour markets and industrial structures
5.2: Assess how and to what extent technical change has a differential impact on societies across the EU on top of Globalisation
WP 6: Macroeconomic and policy underpinnings of productivity. Implications for future economic policies
6.1: Macro implications of micro findings: we capitalise on the research developments in previous work packages on the productivity dynamics and their drivers at the micro level in order to refine the design of policies aimed at reconciling growth and cohesion at the macro level.
6.2: Macroeconomic policy effects on productivity we also aim at exploring whether and to what extent specific choices in the determination of policies at the macro level (e.g. the role of public sector intangibles such as education or an efficient institutional framework) do spill over to the micro dimension, affecting the same productivity dynamics.
WP 7: Exploitation, Dissemination and Communication
More details coming soon.
WP 8: Project Management
More details coming soon.
WP 9: Ethics requirements
More details coming soon.