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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 firm dimension of productivity: The role of productivity dispersion and business dynamics

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.

English

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