Weak labour productivity growth continues to mark the world’s advanced economies and risks compromising improvements in living standards, says a new OECD report.
In its latest Compendium of Productivity Indicators, the OECD says that the slowdown in labour productivity growth (measured as gross value added per hour worked) has especially affected manufacturing – both high tech activities such as computers and electronics, as well as industries requiring lower skill levels – and that gaps in labour productivity levels between large and smaller firms remain high.
And although economic growth in many countries has led to rising employment, particularly in Italy, Mexico, Spain, the United Kingdom and the US, the majority of new jobs are in activities with relatively low productivity.
The greater number of low productivity jobs has also weighed down on average wages across the economy as a whole. Real wages (adjusted for inflation) fell between 2010 and 2016 in Portugal, Spain and the United Kingdom. Although in some countries, such as Germany and the US, real wages have begun to rise in line with, albeit still slow, labour productivity growth in recent years, in many sectors wages continued to lag labour productivity growth. This was the case in one third of all sectors in Germany and the US.
OECD’s chief statistician Martine Durand said:
“The long-term decoupling in wage and productivity growth we see in many OECD countries may also be driving inequalities in income and wealth. Slowing productivity growth and the large number of low productivity jobs being created both limit the scope for improvements in material well-being.”
The share of income from economic activity going to labour through wages has declined in most countries in recent years, but most markedly in Hungary, Ireland, Israel, Mexico, Poland and Portugal.
The Compendium shows that by 2016, the latest year for which comparable international data is available, investment, an important driver of productivity growth, was beginning to pick up. However, investment rates, particularly on machinery and equipment and other tangible assets, were still below pre-crisis levels in many OECD countries.
Investment in intellectual property products, such as software and R&D, has been increasing since before the crisis, often at a faster pace than investment in physical capital but significant differences remain across countries. The share of total investment going to intellectual property in 2016 ranged from 1.1% in Colombia to 30% in Switzerland and 56% in Ireland.
The Compendium says the relatively robust investment in intellectual property, where the benefits to business may take time to feed through, may act as a catalyst for stronger economic growth in the future.
The OECD says productivity is ultimately a question of “working smarter” rather than “working harder”. This reflects firms’ ability to produce more output by better combining inputs through new ideas, technological innovations, as well as by way of process and organisational innovations.
The Compendium, available online, provides comparative data up to 2016 on all aspects of productivity for each OECD country, including long term trends.