Table of Contents

  • The Belgian economy is in an enviable position in many ways. Its citizens have strong talent and skills. Firms have a leading edge in digitalisation. Capital intensity is high. Many multinational enterprises aspire to locate in the country. These are all among the factors that make Belgium one of the most productive economies in Europe and in the world. Productivity – how much a worker produces in a given period of time – matters because, if it is high as in Belgium, it ensures high incomes, room for leisure time and good overall well-being. Higher productivity means working smarter, rather than more hours, and being rewarded for it with higher wages.

  • Promoting productivity growth is essential for increasing incomes, living standards and well-being. The key facts regarding productivity in Belgium are as follows.Fact 1: Productivity is very high. But its growth has declined strongly over the past two decades, despite an increasingly skilled workforce.Fact 2: Productivity developments have been heterogeneous: growth has been relatively high in manufacturing, for already high-productivity firms and in Flanders. However, it has been weak in service sectors, for low-productivity firms and in Wallonia.Fact 3: Inertia, rather than dynamism, describes the business landscape and work careers: few firms enter and exit, and workers stay in the same job for long.If these trends continue, Belgium’s position as a high-productivity and high-wage country is under threat. Further divergence between frontier and lagging firms and regions may also increasingly become a source of economic and political tensions.The 7-Point Action Plan:Reviving Belgium’s productivity growth requires action in many areas cutting across governments and ministerial competences. The first three actions relate primarily to the business environment, the next three to the labour market and the final one to the public finances.Action 1: Promoting competition between businesses in services: this means lowering the regulatory restrictions in services and enhancing the role of the competition authority.Action 2: Improving the effectiveness of government support for R&D: the objective should be to shift support to schemes and firms that create the most additional R&D.Action 3: Strengthening the provision of risk capital and reducing unnecessary costs on risk-taking, in particular by making insolvencies less burdensome.Action 4: Facilitating the job mobility of workers away from firms in economic difficulty to high-growth firms and sectors.Action 5: Supporting the creation of a new culture of lifelong learning to better prepare citizens for an increasingly complex world of work.Action 6: Giving firms and workers more freedom to set wages, with greater scope to adapt collective agreements and compensation systems based more on merit and less on seniority.Action 7: Prioritising public investment in transport and digital infrastructure and university funding, and reducing the tax penalties for moving home and jobs.

  • Belgium has one of the highest productivity levels in the OECD. However, productivity growth has declined over the past decades, more so than in most other OECD and main neighbouring economies. The decline in labour productivity growth has been mainly due to lower multifactor productivity growth, while capital deepening has held up better. The manufacturing sector, even though its productivity has slowed, has outperformed the rest of the OECD. By contrast labour productivity growth in services has been lower and declined more sharply than in the rest of the OECD.

  • Aggregate trends emerge from the productivity performance at the firm level and from the process of creative destruction. This chapter relies on micro-data to uncover the role of both processes for productivity and employment growth. The divergence between the most and the least productive firms in Belgium mostly arises from the worsening performance of firms at the bottom of the distribution, especially in services. The evidence suggests that government-financed research and development and training would ease the diffusion of technologies from the domestic frontier and favour the catch-up of the least productive firms. Start-up dynamics is also relatively low in Belgium, and markedly declining in services. Improvements in the business environment would spur market entry and contribute to the productivity-enhancing reallocation of labour.

  • A well-performing labour market is important to achieve strong productivity growth. This chapter studies the role of wages and skills for productivity. The centralisation of Belgium’s wage-setting system contributes to wage equality and social cohesion. But it also restrains the extent to which high-performing firms can offer higher wages and attract skilled workers. The wage-setting system is thus likely to affect firms’ ability to innovate and grow. The evidence shows that wages are more similar across firms with very different productivity levels in Belgium than in other advanced countries. In other advanced countries, high-productivity firms pay higher wages and low-productivity firms pay lower wages, but this is much less the case in Belgium. Moreover, wage differentiation appears to be stronger in those sectors in Belgium where collective bargaining is more decentralised. The analysis shows that when wages in firms are out of line with the productivity of these firms, as is the case in Belgium, employment growth at high-productivity firms and hence overall productivity growth are weaker. The second part of the chapter studies skill imbalances, finding that overall they exhibit similar levels as in other countries. Shortages of workers arise mainly in high-skilled jobs and surpluses in low- and medium-skilled jobs. Without further improvements in skills, automation is likely to exacerbate the problems for workers at the lower end of the skill spectrum.