5/18/2023 0 Comments Factors of production definitionSources: Own calculations based on Bergeaud, A., Cette, G. Trends in labour productivity (GDP per hour worked) growth in selected euro area countries and the United States This decline results from a variety of interacting factors, including global, country-specific, sector-specific, structural and temporary factors, as well as events with potential scarring effects on productivity and potential output growth, such as the global financial crisis (GFC). Average annual growth in labour productivity – measured as real GDP per hour worked – in those euro area countries that have sufficiently long time series has continuously declined from about 7% in the 1960s to just 1% since the early 2000s (Chart 1). This section presents three stylised facts related to productivity growth in the euro area.įirst, aggregate labour productivity growth has been trending downwards for decades, both in the euro area and in other major economies. 2 Key productivity developments in the euro area Section 5 offers a few concluding remarks. Section 4 focuses on the interplay between monetary policy and those drivers of productivity growth. Section 3 uses firm-level data to discuss the key drivers behind productivity growth, distinguishing between those affecting within-firm productivity growth and those affecting the allocation of production factors across firms. Section 2 introduces the most important productivity-related stylised facts, using macroeconomic and sector-level data to set the context. The article is complemented by Box 4 in this issue of the Economic Bulletin, which presents preliminary evidence on the impact of the (coronavirus) COVID-19 pandemic, and of policy responses to it, on productivity. For a more complete picture, we refer the reader to the full report, which draws from the extensive literature on productivity drivers, existing work within the European System of Central Banks (ESCB), and new analysis. The article summarises the new insights provided by a report drafted for the ECB’s strategy review that documents productivity trends and drivers over the past few decades. This article looks at the key factors behind productivity developments over recent decades in the euro area. There are, however, some counterbalancing factors, including increased longevity, more healthy years of life and higher education levels among the older population. As population ageing causes the share of older workers in the labour force to rise, the above might have negative effects on overall productivity. Regarding euro area population ageing, empirical evidence shows that workers’ physical abilities and innovativeness decline with age, as does the speed with which they adapt to new technologies. Globalisation can increase productivity growth through a variety of channels, namely: i) enhancing export opportunities and market competition ii) promoting “learning by exporting” iii) increasing the variety and quality of production inputs and iv) improving the allocation of resources across firms. Global trends, such as population ageing and the slowdown in the pace of globalisation, have a bearing on productivity developments. Cyclical polices, including monetary policy, may also support productivity growth under certain circumstances by increasing demand and stimulating investment. National governments therefore have ample scope to set the right framework conditions and incentives for productive investment and innovation decisions that determine long-term productivity growth. High-quality education and public administration and the rule of law are also important institutional prerequisites for a competitive business environment, which in turn facilitates technological progress and increases incentives to invent and innovate. National fiscal and structural policies can strengthen productivity growth by fostering greater efficiency in product, labour and financial markets, thereby providing the means and incentives for productive firms to thrive. The primary responsibility for enhancing productivity growth lies with national policies. As such, changes in productivity can influence the transmission mechanism of monetary policy and should be closely monitored. Productivity is also relevant for monetary policy as it is a fundamental determinant of potential output growth and the natural rate of interest and, therefore, of the monetary policy space needed to deliver price stability over the medium term. Productivity growth influences the economy in important ways, affecting key variables such as output, employment and wages. Productivity, defined broadly as efficiency in production, plays a key role in the economic resilience and social welfare of countries. Published as part of the ECB Economic Bulletin, Issue 7/2021. Prepared by Paloma Lopez-Garcia and Bela Szörfi Key factors behind productivity trends in euro area countries
0 Comments
Leave a Reply. |