The Lisbon Council describes this report as follows:

The European Growth and Jobs Monitor is composed of six sub-indicators based on the Lisbon Agenda targets set by the European Council in 2000. For each sub-indicator, we set a benchmark, then rank the 14 countries in the survey based on their performance relative to the benchmark. Finally, the six country sub-indicator scores are combined into one overall indicator, each with an equal weighting. A score of one indicates that a country is on track to meet the Lisbon criteria by 2010, the original date for fulfillment of the targets. A score of less than one means that the country will probably miss its goals. A score of above one signals over-fulfillment.

1. Economic Growth. The first indicator we examine is economic growth. A 3% annual increase in gross domestic product is taken as the benchmark here. This was the objective in the original Lisbon Agenda and was implicitly re-affirmed in the 2005 re-launch of the Lisbon process as The Growth and Jobs Agenda. Our sub-indicator looks at current economic growth per quarter, i.e. the real rate of change on a year earlier, against the 3% target. In order to smooth short term fluctuations, the data is adjusted using a moving four-quarter average.

2. Productivity Growth. The Lisbon Agenda does not formulate any specific productivity objectives, confining itself instead to the general vow to make Europe “the most competitive and dynamic knowledge-based economy in the world.” In general, the United States is an inappropriate economic model for Europe – the downturn has revealed serious structural problems in the US economy and its social system is one that few in Europe would want to replicate. But in the area of productivity and productivity growth, the USA is the mature, economically developed world’s undisputed champion. Because of this, we have taken the USA as the global standard and benchmark in the all-important area of productivity and productivity growth. We calculate the annual rates of change in labour productivity per employee on both sides of the Atlantic, set those figures in relationship to each other and smooth the figures over with a moving eight-quarter average. A score of one indicates that a country has productivity gains that are neck-and-neck with the USA rate. An indicator value of above or below one shows that a country has overtaken the USA or fallen behind it in productivity growth, respectively.

3. Jobs. To measure the employment performance, we have taken the original Lisbon goal of a 70% employment rate (the share of employed persons aged between 15 and 64 in relation to the total population of the same age group) by 2010. Based on the employment rate in the individual countries at the time when the Lisbon strategy was launched in 2000, we have devised a target path with the quarterly increases required to guarantee that the 70% rate will be met on time. The current employment rate is then compared to the target rate for the respective point in time.

4. Human Capital. In order to benchmark the quality of a nation’s workforce – and the amount of investment going into basic issues like education and human capital – we look at the proportion of the working population aged 25 to 64 with tertiary education (academic degrees, Masters Degrees, university or cooperative education, higher research qualifications, doctorates) to the total workforce of the same age group. We calculate a scaled value, beginning by forming the average of the three highest and three lowest shares among the EU-15 member states plus Poland (these shares are averaged over the years 2000 to 2008). We then set those figures as boundary points of the scale. Countries are then placed according to their relative position visà-vis the highest and lowest. A score of around one puts a country in the group of “education frontrunners”, while a score close to zero flags the laggards.

5. Future-Oriented Investment. The fifth sub indicator also refers to the Lisbon Agenda’s implicit goal of orienting investment towards better, more productive ends. To measure the implementation of technological progress, we take investment in machinery and equipment as a percentage of gross domestic product. The investment ratio of the G3-aggregate, consisting of the EU-15, USA and Japan, serves as the benchmark. To eliminate fluctuations based on the economic cycle, we use a multi-year average.

6. Sustainability of Public Finances. In order to measure this important indicator – whose success will help determine the prosperity level of future generations – we base the Sustainability of Public Finances Sub-indicator on two components: the primary balance (the difference between government receipts and expenditure excluding interest paid on public debt) and the public debt level, each as a percentage of GDP. Primary balance equilibrium is defined as target fulfilment, with a score of one. The thinking behind this is that the primary balance sheds light on actual current budget management without being “distorted” by payments stemming from the past, like the fiscal balance. The debt burden is considered separately as a second component, taking the 60% debt ratio laid down in the Maastricht criteria as the target. Both components are entered into our overall Sustainability of Public Finances Sub-indicator with equal weightings.

Allianz Research
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allianz.research@allianz.com

The Lisbon Council
Phone: +32 2 647-95 75
Fax: +32 2 640-98 28
info@lisboncouncil.net
www.lisboncouncil.net

24/03/2009

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Urban Policy > Economy knowledge & employment

Urban economy