OECD Compendium of Productivity Indicators

2225-2126 (online)
2225-2118 (print)
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The OECD Compendium of Productivity Indicators is an annual that presents a comprehensive overview of recent and longer term trends in productivity levels and growth in OECD countries.

OECD Compendium of Productivity Indicators 2016

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26 May 2016
9789264250192 (PDF) ; 9789264258228 (EPUB) ;9789264250185(print)

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The publication presents a comprehensive overview of recent and longer term trends in productivity levels and growth in OECD and some G20 countries. The statistics presented include measures of labour productivity, capital productivity and multifactor productivity, as well as indicators of international competitiveness.

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  • Foreword

    The OECD Compendium of Productivity Indicators presents a broad overview of recent and longer term trends in productivity levels and growth across OECD countries and key partner economies. It highlights the key measurement issues faced when compiling cross-country comparable productivity indicators and describes the caveats needed in analyses. It examines the role of productivity as the main driver of economic growth and convergence, and the contributions of labour, capital and multifactor productivity to economic growth. It looks at the contribution of individual industries or sectors as well as the role of firm size and business dynamics. It explores the link between productivity, trade and international competitiveness, and analyses trends as compared with cyclical patterns in labour and multifactor productivity growth.

  • Executive summary

    Productivity growth is a central driver of long-term economic growth and living standards. But in many advanced and emerging economies productivity growth has been slowing. Against a backdrop of slower rates of investment coupled with increases in income and wealth inequalities, concerns are emerging that this may reflect a structural, and not a cyclical, slowdown, and a new low productivity growth paradigm, with consequential impacts on well-being and inequalities. Promoting productivity growth and sharing productivity gains, through the exploitation and creation of new and emerging technologies, investment in human capital (to meet the needs of 21st century production), and by fostering innovation, in particular through young firms, is as important today as it has ever been, to create a virtuous circle that tackles both growth and inclusion gaps.

  • Reader's guide

    The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities or third parties. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.

  • Measuring productivity

    Productivity growth has been slowing in advanced economies since the mid-1990s, and more recently also in emerging economies. This decline has occurred at a time of rapid technological change, increasing participation of firms and countries in global value chains, and rising education levels in the labour force, all of which are generally associated with higher productivity growth. These seemingly contradictory facts have raised interest in the "productivity paradox" and whether the productivity slowdown is a transitional phenomenon or a longer-term condition. This chapter presents relevant evidence and discusses different views and explanations about the observed productivity trends. It also describes emerging challenges in measuring productivity and the way forward.

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  • Expand / Collapse Hide / Show all Abstracts Economic growth and productivity

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    • Size of GDP

      Gross Domestic Product (GDP) is the standard measure of the value of final goods and services produced in a country during a given period of time minus the value of imports. GDP per capita is a core indicator of economic performance and commonly used as a broad measure of average living standards or economic well-being.

    • Growth in GDP per capita

      Gross Domestic Product (GDP) per capita measures economic activity or income per person and is one of the core indicators of economic performance. Growth in GDP per capita can result from changes in labour productivity (GDP per hour worked) and labour utilisation (hours worked per capita). A slowing or declining rate of labour utilisation combined with high labour productivity growth can be indicative of a greater use of capital and/or of structural shifts to higher-productivity activities.

    • Gaps in GDP per capita

      GDP per capita levels are typically used to compare living standards across countries. Differences in GDP per capita across countries can arise from differences in labour productivity levels and differences in labour utilisation (hours worked per capita). The latter can represent differences in unemployment, participation rates of the working age population and working hours per person employed.

    • Labour productivity

      Labour productivity is the most frequently computed productivity indicator. It represents the volume of output produced per unit of labour input. The ratio between output and labour input depends to a large degree on the presence of other inputs, such as physical capital, intangible fixed assets used in production and technical and organisational change. Labour productivity is a key dimension of economic performance and an essential driver of changes in living standards.

    • Alternative measures of labour productivity

      Labour productivity is most appropriately measured as a volume of output generated per hour worked. However the number of persons employed (i.e. total employment) is often used as a proxy for labour input, in particular, when data on total hours worked cannot be estimated.

    • Alternative measures of income

      In open economies with significant cross border flows of workers and, in particular, of property income, gross national income (GNI) may be more reflective of the income accruing in the country and available for future production. Indeed, GNI reflects the income received by citizens and companies of a particular nation located in the country and overseas.

    • Capital productivity and the role of ICT and intangible assets

      Capital productivity shows how efficiently capital is used to generate output. Investment in information and communication technologies (ICT) enables new technologies to enter the production process and is seen as an important driver of productivity growth. Investment in intellectual property products, such as R&D, not only contribute to expand the technological frontier but also enhances the ability of firms to adopt existing technologies, playing an important role in productivity performance.

    • Growth accounting

      Economic growth can be fostered either by raising the labour and capital inputs used in production, or by improving the overall efficiency with which these inputs are used together, i.e. higher multifactor productivity growth (MFP). Growth accounting involves decomposing total output growth, measured here as GDP growth, into these three components. As such, it provides an essential tool for policy makers to identify the underlying drivers for growth.

    • Multifactor productivity

      Multifactor productivity (MFP) reflects the overall efficiency with which labour and capital inputs are used together in the production process. Labour productivity growth represents a higher level of output for every hour worked. This can be achieved if more capital per labour unit, i.e. capital deepening, is used in production, or by improving the overall efficiency with which labour and capital are used together, i.e. higher MFP.

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  • Expand / Collapse Hide / Show all Abstracts Productivity by industry

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    • Labour productivity by main economic activity

      Sectors differ from each other with respect to their productivity growth. Such differences may relate, for instance, to the intensity with which sectors use skilled labour and physical and knowledge-based capital in their production, the scope for product and process innovation and the absorption of external knowledge, the degree of product standardisation, the scope for economies of scale, and the exposure to international competition through their participation in global value chains.

    • Industry contribution to business sector productivity

      Understanding the drivers of productivity growth in the business sector requires an awareness of the contribution that each industry makes. The contribution of an individual sector depends not only on its productivity growth but also its share in total value added and hours worked.

    • Labour productivity of business sector services

      Developments in information and communication technologies (ICT) combined with internationally fragmented production processes are making business services increasingly dynamic, transportable and tradeable. As a result, several business sector services show characteristics similar to high-productivity manufacturing industries; they are intensive in ICT and knowledge-based capital, innovative, show economies of scale, and are increasingly exposed to international competition.

    • Contributions to business sector services' productivity

      The business services sector has contributed significantly to GDP growth across OECD countries in recent decades, driven by an increase in the number of firms providing intermediate services to other firms, also in the manufacturing sector. This process of outsourcing activities previously conducted in-house has increased efficiencies, and hence, labour productivity, of both outsourcing firms as well as the specialised intermediary firms. Hence, over the long term, both factors may produce a structural shift towards intermediate services industries and a direct positive contribution of high productivity business services to productivity growth of the total economy.

    • Productivity by enterprise size

      Firm heterogeneity and business dynamism matter for productivity. Productivity tends to increase with firm size, as large firms exploit increasing returns to scale. However, new small firms are often found to spur aggregate productivity growth as they enter with new technologies and stimulate productivity-enhancing changes by incumbents. The reallocation of resources across enterprises, driven by firm dynamics, is also expected to increase aggregate productivity via a process of "creative destruction", whereby innovative firms enter the market and expand while displacing lower productivity firms.

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  • Expand / Collapse Hide / Show all Abstracts Productivity, trade and international competitiveness

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    • Unit labour costs

      Unit labour costs (ULCs) reflect total labour costs relative to a volume of output. Hence, the growth in unit labour costs is often viewed as a broad measure of (international) price competitiveness of firms within a country.

    • International competitiveness

      Despite their frequent use, unit labour costs (ULCs) are an incomplete measure of international competitiveness and they need to be complemented with other indicators. In an era of global value chains, a measure based only on the costs of domestic labour may not be representative of overall cost competitiveness of firms within a country. Moreover, ULCs as a measure of price-competitiveness cannot capture the capacity of firms to serve international markets through high quality goods and services and where demand is relatively price inelastic.

    • The importance of global value chains

      Economic theory suggests that more open countries should grow faster and have higher income levels than less open ones. International trade enables firms to specialise in goods and services that can be most efficiently produced in the home country; to sell to larger markets, hence exploiting economies of scale; and to benefit from higher quality and variety of inputs as well as technological spillovers and knowledge exchange. Trade also puts pressure on prices for final goods and intermediate inputs and facilitates international fragmentation of production processes, further reducing costs. Firms exposed to international competition ought to innovate continuously in order to succeed.

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  • Expand / Collapse Hide / Show all Abstracts Productivity trends in G7 countries

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    • Trends in labour productivity growth

      Labour productivity is a key driver of economic growth and living standards. Understanding whether the slowdown in productivity growth has been driven by structural factors and/or by reactions to the economic cycle is hence important for policy makers. This requires decomposing the time series of actual annual labour productivity growth into a trend (or structural) component and a cyclical component.

    • Trends in multifactor productivity and capital deepening

      Policy makers are interested in the structural factors that may have accentuated the recent slowdown in labour productivity growth. The declining trend labour productivity growth may be driven by declining investment in capital relative to hours worked (capital deepening) or could be indicative of factors that hampered growth in multifactor productivity (MFP), such as low innovative activity, slow diffusion of frontier technologies, skills mismatches and inefficiencies due to barriers to competition. To shed light on these structural factors, one can decompose the time series of labour productivity growth as well as its drivers, i.e. the contribution of capital deepening and MFP, into a trend and a cyclical component.

    • Multifactor productivity over the cycle

      A number of studies indicate that multifactor productivity growth (MFP) behaves cyclically, i.e., it increases in upturns and declines in downturns. This has sometimes been interpreted as a paradox, as MFP has traditionally been perceived as exogenous technological change, which should typically not behave cyclically.

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  • Expand / Collapse Hide / Show all Abstracts Annexes

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    • Productivity measures

      The OECD Productivity Statistics (database) (PDB) contains a consistent set of productivity measures at the total economy and at the industry levels. This annex provides detailed information on the measures included in the database. While the PDB and this publication present value added based productivity indicators by relating value added to the labour and capital inputs used, productivity measures can be computed for different representations of the production process. One typical approach is to relate a volume measure of gross output to primary and intermediate inputs, as used in the KLEMS methodology, which measures the contributions of capital (K), labour (L), energy (E), material inputs (M) and services (S) to output growth. This representation is not adopted in the PDB nor in this publication.

    • Measuring hours worked

      Within the OECD Productivity Statistics (database) (PDB), the underlying concept for labour input is total hours actually worked by all persons engaged in production.

    • Capital input measures at the OECD

      Two key measures of capital stock exist. The first is productive capital stock, which looks at capital in its function as a provider of capital services in production. The second is gross (or net) capital stock, which captures the role of capital as a store of wealth.For more information on capital measures and their uses see OECD (2001, 2009) and Schreyer (2004). This annex provides supplementary information on these two measures, the approaches used to estimate them and capital measures available at the OECD.

    • The System of National Accounts 2008

      In 2009, The United Nations Statistical Commission endorsed a revised set of international standards for the compilation of national accounts: the System of National Accounts (SNA) 2008, replacing the 1993 version of the SNA. For Chile, China, Colombia, India, Japan, Turkey and the Russian Federation the indicators presented in this publication are in line with the 1993 SNA. For all the other countries, the indicators are based on 2008 SNA. The 2008 SNA includes a number of changes from the 1993 SNA and was adopted by most OECD countries at the end of 2014.

    • Measuring producer prices and productivity growth in services

      Empirical evidence presented in this publication points to relatively low productivity growth rates over long periods for several service industries. This is true even for some business sector services for which rapid technological change and increasing competitive pressures may argue for an opposite trend. However, for some services, this evidence may reflect an under-estimation of service productivity growth, linked to difficulties measuring price indices, and hence volume series of services value added (Wölfl, 2003). While problems estimating an appropriate price index may arise in several manufacturing industries, there are reasons that measurement problems may be stronger in the service sector than in manufacturing.

    • Purchasing power parities

      Purchasing power parities (PPPs) are the rates of currency conversion that equalise the purchasing power of different currencies by eliminating the differences in price levels between countries. In their simplest form, PPPs are price relatives which show the ratio of the prices in national currencies of the same good or service in different countries. In this sense, they are spatial price comparisons.

    • Trends

      Understanding to which extent productivity growth is driven by structural factors and affected by short-term economic fluctuations is of utmost importance for policy makers. To shed light on this distinction, one can decompose the series into a trend and a cyclical component, where the trend is meant to capture the long-term growth of the series and the cyclical component is the deviation of the series from that trend. In the OECD Compendium of Productivity Indicators 2015, the method used to extract the trend component is the Hodrick-Prescott (HP) filter (Hodrick and Prescott, 1997).

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