The last pattern relates to the argument that there has been income created without respective output or result in production (value). If products are sold at lower prices (compared to the costs of produc- tion) or even given away for free, then aggregate income necessarily must outpace national product. In theory, GDP and GDP are supposed to be equal, as they are connected by an identity. In prac- tice, however, they diverge by a small amount - so-called statistical discrepancy101(Bartelsman and
Beaulieu (2004, p. 9)). For the US no significant trend of a growing gap was observable - even though for most of the years, gross domestic income (GDI) was slightly larger than gross domestic product (GDP) (Syverson (2016, pp. 16-18 and p. 26)).
100As data is missing for several years, I calculate the missing points by applying the average annual growth rates, as
Syverson did, too. The average annual growth rate for value added in the manufacturing sector from 2008-2015 was 2.783563546%. Please see the appendix V for further information.
101Statistical discrepany is explained by different methods of calculations. In this case data sources for expenditures
As mentioned, one way of calculation and interpretation of GDP is that it is the aggregate value of products and services produced in a specific period of time and within geographic boundaries (expenditure approach). As production generates income, GDP can also be calculated via incomes generated in the geographic boundaries (income approach, here: GDI). For the income calculation not only labour and capital compensation are relevant but also taxes & subsidies (net taxes) and depreciation (capital consumption), as well the balance of primary incomes with the rest of the world. More precisely, the method for calculation is (Statistisches Bundesamt (2019e)):
NI (National Income= labour compensation + capital compensation) Plus Balance of (+Taxes and −Subsidies)
Plus Depreciation
Plus Balance of Primary Incomes from (+) and to (−) the Rest of the World (here: PIRW) Equals Gross Domestic Product (GDP)
For the calcluation, data is taken from Statistisches Bundesamt (2018c) and Statistisches Bundesamt (2017c) (Code: 81000-0005). Results are presented table in appendix V. If incomes (GDP income approach, here: GDI) exceed products’ values (GDP expenditure approach), this could indicate and verify the hypothesis, that some part of the missing amount is embodied (and hidden) in products, given away for a lower price or even for free. Syverson (2016), however, rejects the hypothesis as the worker’s share has in fact fallen within the last decade (from around 55% to 53% for the US).
Figure 38: Gap GDI vs. GDP. Source: Statistisches Bundesamt (2018c, 2017c); own calculations and illustration.
-3
-2
-1
0
1
2
3
4
5
6
1991
1994
1997
2000
2003
2006
2009
2012
2015
2018
%
For Germany, the potential gap (calculated as GDI minus GDP in relation to GDP) between the income and expenditure approach (GDI vs. GDP; which reflects statistical discrepancy) can be separated into two parts. In the 1990s, most of the years exhibit negative gaps, implying GDI being larger than GDP. For the year 2003 and every subsequent one, however, GDP outperforms GDI, which is very much against the supposition that products were given away for free. Moreover and like in the US, labour share has decreased little from around 54% at the beginning of the 1990s to 49% in 2018. These two results (“wrong” prefix of the gap and the slightly declining labour share) indicate that there is no wisdom in the hypothesis that products were given away for free.
11
Concluding Remarks on Part III
At the beginning of part II, an empirical investigation with regard to productivity variables and relatives was set up. It has been shown that Germany, as well as other developed economies, is exposed to declining numbers of productivity. Several possibilities to capture the efficiency of the production factor labour were outlined - all of them pointing into the same direction. Over the last decades, Germany was not able to maintain its rates of productivity growth. Depending on the denominator chosen, rates have decreased from around 3% to 5% to values of slightly below the 1%- mark. The same applies for total factor productivity, which captures all production factors in use and - as the first part of the present study has suggested - represents (at least approximately) technological progress. Even though Germany has performed relatively better compared its fellow countries (i.e. the US), its negative trend cannot relieve. As investment and productivity are linked to each other, capital formation - with a specific focus on infrastructure - has been analysed. Negative trends for productivity indicators, as well as for other economic variables (i.e. capital formation), are outlined. They seem to confirm the fact that there is the necessity for a trend reversal. Even though it has been argued correctly (i.e. by the Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung (2014)) that it is also a matter of defining appropriate benchmarks (or some kind of optimal amount), these negative developments over the last decades are definitely faltering economic development in Germany.
The empirical analysis represents the base for the further elaboration of the productivity puzzle in Germany, as it argues in favour of the existence of real economic causes as potential explanation. On the opposite, studies have claimed poor measurement for the loss in the statistics. Their central argument is that if measurement is executed properly, then this can account for the missing portion in the data sheets.
At first, a short revival (and some kind of recycle) of the arguments of the 1970s-slowdown has been brought up. In course of the oil price shocks and other economic turmoils in the 1970s (and of course its ramifications still working in the 1980s), there already has been an ongoing debate on the causes of slowing rates of productivity growth. Interestingly, many of the arguments brought up then,
still play a role for the current slowdown (i.e. insufficient capital formation or energy-price related developments burdening the public budget).
On the basis of the so-called theory of secular stagnation, the “real” causes were examined, laying the scope on Germany (and for the reason of comparison on the US). Applying Robert Gordon’s classification as “headwinds faltering economic growth”, business development in Germany is analysed. His main argument of simply having less (important) technological innovations nowadays and the acceptance that it is some kind of natural rebound now, has been laid out - the major argument is not set up country-specific, so it is presented without specific application on Germany. An insufficient level of effective demand, usually associated with short-run business-cycle developments, plays a role - but more in a sense of amplifying the other channels (headwinds). I.e., by the need of setting an expansive stimulus for the level of demand, a government’s budget faces additional burdens. The evaluation of the headwind of public debt then allows for argumentation in both directions. On the one hand, the issue of public debt does not represent a strong headwind as, compared to other countries of the European Currency Union, Germany provides deficit- and debt-ratios at the lower end of the scale. However, it constantly shows years of missing the (legal) financial requirements, set by the Treaty of Maastricht.
A headwind clearly providing explanatory power is the one with respect to capital spending and infrastructure. Not only does Germany show decreasing trends of capital formation (especially for the public sector), it is also exposed to an insufficiently equipped infrastructure (i.e. traffic, broadband technologies). As the endowment with capital goods not only supplies the capacity in any sense, it also delivers and diffuses technological change. Shrinking degrees of modernity for fixed capital assets in Germany do not fit the image of an economy, which is ready for the developments in course of the current wave of technological change.
The evaluation of headwind #3, the demographic one, is a little complicated. Germany has an ageing and shrinking population and expects to diminish further, which limits the potential labour market supply as well as the probability of finding high-quality employees in order to avoid mismatch situations. In addition, the average working week in terms of hours has declined from almost 40 hours per week in the 1980s, to 32 in 2016. One could be tempted to attest a negative impact. By taking