The Knowledge Economy in Europe
23 pages; PDF.

A report prepared for the 2007 EU Spring Council
Prepared by Ian Brinkley and Neil Lee October 2006

European countries together have a ‘knowledge economy’ that is as big if not bigger than that of the US, with over 40 per cent of workers employed in knowledge-based industries*. But the continent has not matched the US in terms of economic growth and productivity largely because it has not invested as much in its knowledge base and may be suffering a slowdown in technological progress as a result.

The report finds:

• Over the past decade most of the new jobs across the EU15 have come from the expansion of the knowledge-based industries, rising by 24 per cent against just 6 per cent in overall employment growth. Between 1995 and 2005, technology and knowledge based industries created 2.5 times more net jobs than the rest of the economy.
• The biggest single group of knowledge economy jobs is education and health, which account for over 19 per cent of all jobs in Europe.
• The Nordic countries and the UK have the biggest shares of employment in the knowledge economy; Sweden has 54 per cent, while Denmark, the UK and Finland are close behind with 50 per cent.
• Europe has particular strength in knowledge-based services. Employment increased by 31 per cent between 1995 and 2005 in knowledge-based services ­ twice as fast as in ‘non-knowledge services’.Business services and communications jobs grew by 54.5 per cent.
• Employment in knowledge based industries in the US is less than in the Nordic countries, the UK and the Netherlands. The US has about 38 percent of its workers in knowledge economy jobs (using comparable, but different definitions).
• The target of 3 per cent of GDP invested in research and development in the EU set by the Lisbon 2000 EU strategy council is unrealistic. R&D investment across the EU has increased by less than 0.1 per cent of GDP in 10 years, so 3 per cent is unachievable. A revised target of 2.5 per cent by 2015 is ambitious yet achievable.
• Fiscal measures such as tax incentives to increase R&D have a role, but their impact is likely to be small. For example, tax credits in the UK are likely to add only 0.1 per cent to the amount UK businesses invest in R&D.
• As well as in R&D, Europe lags behind the US in ICT spending. In 2004, the US invested 4.6 per cent of GDP in IT. By contrast, Europe invested 3 per cent.

The report also disputes the notion that product and labour market regulation explains lower economic growth. Nordic countries, with relatively high levels of labour market regulation, are among the most successful knowledge-based economies in the world. In addition, Europe as a whole has been moving close to US levels of product market regulation, and has cut levels of labour market regulation over recent years.

Source: The Work Foundation (via IWS News Service and Stuart Basefsky)

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