26/05/2016 - 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 Compendium of Productivity Indicators.
In most OECD countries the slowdown has cut across nearly all sectors, affecting both large and small firms alike, 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.
The Compendium looks at a broad range of possible explanations for this paradox and slowdown in labour productivity, characterised in large part, certainly pre-crisis, by slowing multifactor productivity (which comprises the contribution of technology, production techniques, knowledge gains and management practices).
The Compendium 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 ‘mis-measurement’, particularly as the slowdown has occurred across a range of sectors, including manufacturing, where measurement challenges are not too onerous.
Slowing productivity growth has hit wages. 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.
Further information about OECD work on productivity – including studies prepared for discussion by OECD Ministers at their June 2016 Council meeting can be found at www.oecd.org/forum/issues/forum-2016-issues-inclusive-growth-and-productivity.htm.
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