Interviews
Productivity growth to accelerate to 1.7% this year
16 Jan '08
4 min read
One of the most significant changes is the emphasis on innovation-related spending in the emerging world. While expenditure on R&D and investment in information and communication technology in emerging economies are still at less than half of the level in advanced economies, the spending gap is narrowing. This reflects a commitment to compete on the basis of innovation capacity, not just cost.”
Productivity levels in emerging economies are still very low at between 10% and 40% of the U.S. level. However, as the wage gaps are generally even larger, the labor cost per unit of output provides a cost competitiveness advantage to emerging economies which for manufacturing can be as low as 20% of the U.S. level and 25% of the European level.
Europe suffered a slowdown in labor productivity growth last year as the business cycle passed its peak and structural reform remained sluggish.
Output per hour worked rose by 1.4% across the 27 European Union states in 2007, down from 1.7% the previous year. It is expected to slow further, to 1.3%, in 2008 in the EU-27, and even to 1% in the “old” 15-member EU. For the second year running, however, Europe performed better than the US.
The disappointing European average was the result of weak productivity growth in a number of major economies, including Germany and France, but it masked some impressive performances, most notably in the UK.
One reason for Europe's productivity growth slowdown is that most advanced countries were at, or already well past, the peak of their business cycles.
This means that the employment growth rate accelerated faster than the output growth rate. With growth now slowing, additional jobs may not help boost productivity in the short run. Productivity growth in Europe also stayed well below its long-term average trend as a result of persistent structural inefficiencies.
“While some progress is being made on structural reforms, particularly in labor markets and services industries, many of these reforms have come late and are often patchy,” says van Ark.
“Furthermore, Europe seems to have greater trouble in having innovation and knowledge creation turn into the creation of more productive jobs, as GDP growth and employment – at least in the short run – often offset each other.”
Productivity levels in emerging economies are still very low at between 10% and 40% of the U.S. level. However, as the wage gaps are generally even larger, the labor cost per unit of output provides a cost competitiveness advantage to emerging economies which for manufacturing can be as low as 20% of the U.S. level and 25% of the European level.
Europe suffered a slowdown in labor productivity growth last year as the business cycle passed its peak and structural reform remained sluggish.
Output per hour worked rose by 1.4% across the 27 European Union states in 2007, down from 1.7% the previous year. It is expected to slow further, to 1.3%, in 2008 in the EU-27, and even to 1% in the “old” 15-member EU. For the second year running, however, Europe performed better than the US.
The disappointing European average was the result of weak productivity growth in a number of major economies, including Germany and France, but it masked some impressive performances, most notably in the UK.
One reason for Europe's productivity growth slowdown is that most advanced countries were at, or already well past, the peak of their business cycles.
This means that the employment growth rate accelerated faster than the output growth rate. With growth now slowing, additional jobs may not help boost productivity in the short run. Productivity growth in Europe also stayed well below its long-term average trend as a result of persistent structural inefficiencies.
“While some progress is being made on structural reforms, particularly in labor markets and services industries, many of these reforms have come late and are often patchy,” says van Ark.
“Furthermore, Europe seems to have greater trouble in having innovation and knowledge creation turn into the creation of more productive jobs, as GDP growth and employment – at least in the short run – often offset each other.”
The Conference Board
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