In-Depth Productivity Review of Belgium

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Belgium has a high level of productivity. However, growth of productivity has declined quite strongly over the past two decades, and more so than in other advanced economies. This is a worrying development, as fewer productivity gains mean less wage growth and a slowdown in improvements to pensions, health care and well-being. This In-Depth Productivity Review of Belgium assesses in detail the drivers of productivity and recommends a 7-Point Action Plan to reignite productivity growth in Belgium. Reviving productivity growth requires action in many areas cutting across governments and ministerial competences. Measures are needed to instil more dynamism in Belgium’s economy, both among businesses and in the labour market, and to make the public finances more growth-oriented. In addition to recommending detailed policy measures to revive productivity growth, the Review contains three analytical chapters that lay out the evidence base: Chapter 1 on economy-wide and sectoral trends in productivity; Chapter 2 on the role of firms for productivity, with a focus on the dispersion of performance among businesses; and Chapter 3 on the worker dimension of productivity, with a focus on the role of wage bargaining and skills.


Overview of main findings and policy recommendations

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.


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