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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.

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The worker dimension of productivity: The role of wages and skills

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.

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