New OECD indicators trace productivity growth slowdown pre- and post- crisis

New OECD indicators trace productivity growth slowdown pre- and post- crisis

Productivity growth – the central driver of rising economic output and material living standards – has been slowing in many advanced and emerging economies in the wake of the crisis, according to new data released today in the OECD’s Compendium of Productivity Indicators

In most OECD countries the slowdown has cut across nearly all sectors, affecting both large and small firms, but has been particularly marked in those industries where new digital and technological innovations were expected to generate productivity dividends such as in the information, communication, finance and insurance sectors. 

But the Compendium also shows that the slowdown started well before the crisis, despite increased participation of firms in global value chains, rising education levels and technological innovations. This paradox has raised questions as to whether the productivity slowdown is a transitional phenomenon or a long-term condition constraining economic growth.

The Compendium looks at a broad range of possible explanations for the paradox. The slowdown in labour productivity is characterised in large part, certainlyOECD productivity pre-crisis, by slowing multifactor productivity which comprises the contribution of technology, production techniques, knowledge gains and management practices.

It notes that a number of factors may be behind the paradox such as skills mismatches, sluggish investment, and declining business dynamism, particularly post crisis.

Investment in information and communication technology, for example, has fallen as a share of GDP in recent years in many countries, particularly in Germany, Sweden, Japan and the US. While business dynamism, measured by start-up rates and the pace with which new firms displace less productive companies, has also slowed significantly in many OECD economies.

The Compendium also argues that although measuring productivity is complex, the paradox cannot be explained away by ‘mismeasurement’, particularly as the slowdown has occurred across a range of sectors, including manufacturing, where measurement challenges are not too onerous.

Between 2009 and 2014, for example, labour productivity in the manufacturing sectors of the Czech Republic, Finland and Korea slowed significantly.

Slowing productivity growth has hit wages as countries have sought to maintain competitiveness – particularly in economies struck hard by the crisis such as Greece, Spain and Ireland.

This may exacerbate income and wealth inequalities, by trapping many workers in low productivity activities with high job insecurity, so creating a vicious circle. Addressing the link between productivity and inequality will be at the heart of policy discussions at the OECD Ministerial Council Meeting in Paris on 1-2 June 2016.

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