The Future of Productivity

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11 Dec 2015
9789264248533 (PDF) ;9789264248526(print)

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This book addresses the rising productivity gap between the global frontier and other firms, and identifies a number of structural impediments constraining business start-ups, knowledge diffusion and resource allocation (such as barriers to up-scaling and relatively high rates of skill mismatch).

Analysis based on micro and industry-level data highlights the importance of reallocation-friendly policies, including well-functioning product, labour and risk capital markets, efficient judicial systems, bankruptcy laws that do not excessively penalise failure, housing policies that do not unduly restrict labour mobility, and improvements in public funding and organisation of basic research which do not excessively favour applied vs basic research and incumbents vs young firms.

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  • Preface and Acknowledgements

    Productivity is the ultimate engine of growth in the global economy. Raising productivity is therefore a fundamental challenge for countries going forward. This new OECD report on The Future of Productivity shows that we are not running out of ideas. In fact, the growth of the globally most productive firms has remained robust in the 21st century. However, the gap between those global leaders and the rest has increased over time, and especially so in the services sector. This implies that knowledge diffusion should not to be taken for granted. Future growth will largely depend on our ability to revive the diffusion machine, both within and across countries. At the same time, there is much scope to boost productivity and reduce inequality simply by more effectively allocating human talent to jobs.

  • Editorial

    Paul Krugman noted in 1994: "productivity isn't everything, but in the long run it is almost everything". Productivity is about "working smarter", rather than "working harder". It reflects our ability to produce more output by better combining inputs, owing to new ideas, technological innovations and business models. Innovations such as the steam engine, electrification and digitisation have led to radical changes in the production of goods and services, raising living standards and well-being. Indeed, the large differences in income per capita observed across countries mostly reflect differences in labour productivity (Figure I.1). At the same time, productivity is expected to be the main driver of economic growth and well-being over the next 50 years, via investment in innovation and knowledgebased capital. Thus, it is of little surprise that the recent productivity slowdown has sparked widespread interest, with the debate centring on the extent to which the productivity slowdown is temporary, or a sign of more permanent things to come.

  • Acronyms and abbreviations
  • Executive summary

    Productivity growth slowed in many OECD countries even before the crisis, which amplified the phenomenon. The slowdown in knowledge-based capital accumulation and decline in business start-ups over this period also raises concerns of a structural slowing in productivity growth.

  • The past and future of productivity

    This chapter examines a number of issues related to the past and future of productivity, which centre on structural dimensions to the recent productivity slowdown, the impact of the crisis on productivity performance, the sources of future economic growth and the outlook for growth at the global productivity frontier.

  • Thinking about productivity

    This chapter provides a framework for analysing the economic forces that shape productivity developments, with particular emphasis on the role of firms at the global productivity frontier, the diffusion of frontier innovations and best practices, and firm heterogeneity and resource reallocation.

  • Enhancing productivity in a globalised world

    This chapter examines some key factors that are likely to increasingly affect future productivity performance, which centre on facilitating the diffusion of knowledge from the global frontier, allowing productive firms to thrive and making the most of human capital.

  • The role of public policy

    This chapter first discusses the potential for policy to promote growth at the global productivity frontier, and then turns to the links between policies and other aspects of productivity performance. In this regard, the second section discusses the role of innovation policies, while the third and fourth sections show that well-designed framework policies can create the conditions for productive firms to thrive and underpin the diffusion of knowledge from the frontier and for societies to allocate skills more efficiently. The latter also requires policy-makers to cast a wider net, such as addressing the potentially adverse effects of housing policies on skill mismatch.

  • Conclusions and future research

    The chapter offers some conclusions and identifies avenues for future research, including initiatives to improve the measurement of productivity and relevant policy indicators.

  • Additional charts and tables

    The annex contains a range of supplementary materials included to support the analysis contained in the main chapters of the book.

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