ÉCONOMIE OECD
“THE FUTURE OF PRODUCTIVITY” Productivity, i.e. the ability of an economy to optimise socio-economic output with a given set of production factors, maximising the impact of labour and capital, has become a core concern to governments of all knowledge-driven economies and is seen as the competitiveness factor of the future. Text: Stéphanie Musialski and Annabelle Dullin, Economic Affairs, Chamber of Commerce
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roductivity is an indicator tightly correlated with the standard of living of the people of a country and as such, the longterm evolution of productivity is an important gauge of the evolution of the living standard in a country and its socio-economic dynamism. It enhances the endogenous growth potentials in countries, improving productivity and competitiveness of their economies. The OECD has recently published a new article dedicated to the future of productivity.(1) A persisting slowdown of productivity has been observed in many OECD countries since even before the crisis and has sparked widespread debate about whether this slowdown is temporary or permanent. Based on new economic analysis of 21 OECD
countries (Luxembourg excluded), the OECD sheds important insights on not only the nature of this slowdown, but also on its consequences from a policy perspective. The Chamber of Commerce believes there is a lot to learn from this publication on a Luxembourg level, where productivity has stagnated over the past decade.
A BREAKDOWN OF THE “DIFFUSION MACHINE” Productivity reflects countries’ ability to produce more output by better combining inputs, owing to new ideas, technological innovations and business models. The Future of Productivity illustrates that the major factor underlying the producti-
vity slowdown is not so much a deceleration of innovation by the most globally advanced firms, but rather a diminishing pace at which innovations spread throughout the economy: what the OECD describes as a breakdown of the “diffusion machine”. Indeed, the productivity growth of the globally most productive firms has remained robust recently, but the gap between those high productivity firms and others has amplified. Interestingly, high productivity firms’ growth has remained robust since 2004, when aggregate productivity in advanced economies, for instance in the United States, began to slow down.
WHICH ARE THE “HIGH PRODUCTIVITY FIRMS”? According to the OECD, there are three types of firms: (1) the globally most productive firms, also known as “global frontier firms” which account for a majority of productivity variations worldwide, (2) the most advanced firms nationally, whose output is too small at the global level to influence productivity changes worldwide however, and (3) laggard firms. Overall, a productivity gap is observed between global frontier firms and other firms (see figure 1), and the OECD attributes the formers’ relative strength to their capacity to innovate and to optimally combine
Figure 1: Robust growth at the global productivity frontier (Labour productivity levels; average annual growth rates; index 2001 = 0)
Source: Andrews, Criscuolo and Gal (2015), Frontier Firms, Technology Diffusion and Public Policy: Micro evidence from OECD countries, OECD Mimeo.
0.5
0.5
Manufactoring Sector
Frontier firms
0.4
0.4
All firms 0.3
3.5% per annum
0.3
1.7% per annum
0.1 0.1 0.5% per annum 2001 2002 2003 2004 2005 2006 2007 2008 2009
68 MERKUR
5.0% per annum
0.2
0.2
0.0
Services Sector
0.0 -0.1
0.3% per annum
-0.1% per annum 2001 2002 2003 2004 2005 2006 2007 2008 2009
Non-frontier firms
Global frontier firms have become relatively more productive over the 2000s, expanding at an annual rate of 3.5% in the manufacturing sector, compared to an average growth in labour productivity of just 0.5% for non-frontier firms. “Frontier firms” corresponds to the average labour productivity of the 100 globally most productive firms in each 2-digit sector in ORBIS. “Non-frontier firms” is the average of all other firms. “All firms” is the total sector from the OECD STAN database.