In fact, while total factor productivity in manufacturing has grown by more than 30%, growth in services has barely budged. What is behind this phenomenon? The data point to a higher degree of competition in the manufacturing sector following the launch of the Common Market: mark-ups, an indicator of the pricing power of firms, have gone down since then.
By contrast, mark-ups on services have stayed high in Germany, higher even than in many other European countries. Thus, there is room to improve the functioning of the services sector by promoting competition: opening up closed professions, cutting red tape, and improving financing conditions for nascent digital firms would be options to achieve this objective.