Tuesday, 6 November 2012

Labour productivity: A depressing tale

The OECD has just publised a productivity compendium, full of great information.  Here's a Figure, Figure 6.1, showing output per hour for a number of countries, trying to calculate its trend via averages
Labour productivity is defined here as GDP per hour worked. Its decomposition into a trend and cyclical components is done in two steps. First, average annual growth is calculated for each cycle, where the economic cycle is defined using the chronology of turning points in the OECD's Composite Leading Indicators. Second, the individual average growth rates for a given cycle are linked so as to develop a time series of smoothed trend. The smoothing follows a geometric average, assuming that annual labour productivity growth is constant between the mid-points of each cycle.

Here are the results and my interpretation.
1. France, Germany and Italy: the trend productivity growth is falling, even before the recession.  This is very worrying.

2. the UK jumped up in the late 80s, 90s, 00s.  So that was good.  Likely a combination of the supply side reforms in the early 1980s which enabled the speedy diffusion of ICT (Nick Crafts makes this argument).  The snag is that labour productivity growth has now fallen very sharply.

3. The US acceleration came in 1995, which boosted it up to UK levels.  But the US decelaration in the   2010s is much less.