Executive summary

Short-term trends

Labour productivity growth in the OECD area remains weak. Since 2010, annual growth in labour productivity has slowed to 0.9%, about half the rate recorded in the pre-crisis period. Labour productivity growth has also slowed in OECD countries with relatively low labour productivity levels, undermining the pace of convergence. A similar picture surfaces for emerging economies, in particular in Brazil, the Russian Federation and South Africa, who have fallen further behind the productivity frontier with subdued performance in recent years.

On the back of weak multifactor productivity growth and with post-crisis investment rates still below pre-crisis levels in many economies, GDP per capita growth has been largely sustained by increases in labour utilisation, as employment rates have climbed to historic highs in most countries.

In many countries, recent employment growth has been in activities with relatively low labour productivity, dragging down overall labour productivity. Some countries, such as Belgium, Finland, Italy and Spain, have even seen net job destruction in industries with above average labour productivity levels and in many OECD economies, the top three sectors generating the largest net employment gains since 2010 had below average labour productivity, with accommodation and food services, and health and residential care activities featuring highly in many economies.

More jobs in lower labour productivity activities has also meant more jobs with below average wages in most economies, weighing down on average salaries in the economy as a whole, compounding the effects of slower productivity growth and its ability to drive wage growth. Although growth in real wages (compensation per hour worked), adjusted for inflation has begun to strengthen in most economies in recent years it remains below pre-crisis rates in many. However, in many countries, there are signs that the post-crisis decoupling of wage and productivity growth is beginning to unwind, in particular in those economies where employment rates are high.

The recovery of investment remains modest. In some countries, such as Canada, the United Kingdom and the United States, the slack in labour markets and downward pressure on wages may have allowed firms to defer investment decisions and instead increase employment, especially with labour costs lagging investment costs, undermining, in turn, the potential for investment driven productivity growth.

With labour costs beginning to rise in many countries, firms may begin to reconsider investment decisions, but political uncertainties, trade tensions and the erosion of business and consumer confidence may continue to undermine the recovery of investment.

Long-term trends

Productivity growth in most countries remains well below historic averages. The slowdown in labour and multifactor productivity growth has been a common feature across countries, and underlying long-term trends suggest that it was underway prior to the crisis.

The post-crisis period has been characterised by a significant increase in the contribution of labour utilisation to GDP per capita growth, notably in the United Kingdom and the United States. This differs from the pre-crisis period where growth in labour utilisation played only a marginal role in most countries.

The post-crisis slowdown in labour productivity growth in manufacturing has been widespread, spanning nearly all sub-sectors of manufacturing from higher-tech, higher skilled activities such as computers and electronics, to those traditionally viewed as lower-tech and lower-skilled, such as textiles.

Productivity growth in manufacturing, however, continues to outpace productivity growth in services. Within the business services sector, for most countries, labour productivity growth over the past fifteen years was mainly driven by distribution, accommodation and food, and transport services, reflecting their large share on overall economic activity and employment. In the pre-crisis period strong productivity growth in finance and insurance activities also played a strong role but their contribution has been weaker since then. Although productivity growth has also slowed considerably in information and communication (ICT) activities it remains above that for the whole economy in many countries.

In most countries, gaps in labour productivity levels between large firms and small and medium-sized enterprises (SMEs) are significant. This is particularly true for micro firms in both manufacturing and business services sectors, even if there are countries and industries where some smaller enterprises are able to outperform larger firms, mostly in business services. In information and communication activities, productivity gaps between SMEs, in particular micro firms, and large firms remain high but the evidence suggests that those gaps are closing, in particular in the Baltic States, and Portugal, pointing to potential uptake of digital tools.

Investment in intellectual property products has been increasing over the last fifteen years, often at a faster pace than investment in traditional physical capital, with shares of investment in intellectual property products climbing to 30% in Switzerland and 43% in Ireland in 2017.

Over the past fifteen years, many countries have improved their relative competitiveness by keeping unit labour costs (ULCs) in check in both manufacturing and business sector services; as was the case in Belgium, Germany, Ireland, Israel, Poland and Portugal, reflecting relatively strong labour productivity growth and/or moderate wage increases. In the Czech Republic, Hungary, Korea, Lithuania, Poland, the Slovak Republic and Slovenia, large productivity gains have helped to keep ULCs in check despite significant wage increases.

Labour income shares have declined in most countries over the last fifteen years, particularly in the manufacturing sector, with the largest declines in Greece (58% in 2001 to 45% in 2017), Poland (from 66% in 2001 to 53% in 2017) and the United States (61% in 2001 to 48% in 2016). In business services, the largest declines occurred in Australia (70% in 2001 to 61% in 2017), Belgium (85% in 2001 to 75% in 2017) and Ireland (56% in 2001 to 43% in 2017).