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The Productivity-Inclusiveness Nexus

image of The Productivity-Inclusiveness Nexus

Historically low productivity gains and record high inequality are major challenges for policy makers around the world. Both concerns have been exacerbated by the global financial crisis but took roots well before and reflect fundamental challenges with the way our economies function.

 

This report proposes a new comprehensive approach to promote better productivity performance and reduce inequalities. It not only gathers the most recent empirical evidence on the main factors behind slowing productivity gains and rising or persisting inequalities but also suggests possible common foundations and linkages between these two trends. It stresses the risk of a vicious cycle setting in, where individuals with fewer skills and poorer access to opportunities are confined to unproductive and often precarious jobs. This reduces aggregate productivity and widens inequality. The report focuses on how to expand the productive assets of an economy by investing in the skills of its people and providing an environment where all firms have a fair chance to succeed, including in lagging regions. It draws preliminary conclusions on the type of policy packages that are needed and on their implications for policy making. It also sets an agenda for future research to deepen empirical evidence and make concrete country-specific policy recommendations.

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The Productivity Paradox

Why has aggregate productivity growth slowed across OECD countries and emerging economies over recent years? What was the relative importance of structural and cyclical factors in driving this trend? This chapter sets out to answer these questions by examining the evolution of the great productivity slowdown that has taken place in OECD countries since the turn of the millennium, and subsequently spread to prominent emerging markets. It highlights the paradox of slowing aggregate productivity at a time of fast technological change before going on to consider possible causes of this phenomenon. In particular, it looks in greater depth at the role played by the divergence in productivity performance between global frontier firms and poorer-performing nonfrontier firms, and at the pronounced discrepancies between the productivity growth rates of different regions. The chapter suggests that structural policy settings limiting competition may have been an important contributor to the trends described.

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