Since the early 1990s, the [productivity] gap between the EU15’s northern and southern countries has been growing. At the same time, the productivity gap between the [formerly communist] east and the south has been shrinking, and quickly. The timing is not coincidental, starting at a time when the first association agreements were signed in central Europe. But this has happened so quickly that most people are surprised to be presented with this picture. And this is the reason that central and eastern Europe are now almost the economic equals of southern Europe.And the reasons why aren't hard to understand;
Countries in central Europe still have a long way to go. Productivity levels are just half of those in countries such as Germany and Sweden.They were rising until the crisis, and have to start increasing again. Czechs, Estonians and Poles sometimes ask how countries in central Europe can best contribute to the reinvigoration of Europe? Part of the answer is by continuing to make their workers more productive. And southern Europe can stop being a destabilising influence by not doing things that made Greeks, Italians and Spaniards less productive during the 2000s.Specifically, make it easier to hire and fire workers. That will draw more of them into formal (tax paying!) employment from their current informal arrangements.
The two economists make a compelling, and simple, argument; encourage productivity, don't discourage it, and reap the long run benefits.
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