Tuesday, 26 May 2015

* Weak productivity turns into a problem of global proportions

Financial Times
Chris Giles and Sam Fleming

Output per worker grew last year at its slowest rate since the millenium, with a slowdown evident in almost all regions. The Conference Board, a think-tank, said that based on official data on output and employment from most countries, only India and sub-Saharan Africa enjoyed faster labour productivity growth last year.

Globally, the rate of growth decelerated to 2.1 per cent in 2014, compared with an annual average of 2.6 per cent between 1999 and 2006, it said.

Bart van Ark, the Conference Board’s chief economist, said total factor productivity, which takes account of skill levels and investment as well as the number of workers, fell 0.2 per cent in 2014.

“This is a global phenomenon and so we have to take it very seriously,” he said.

Economists are increasingly identifying the problem of low global productivity as one of the greatest threats to improved living standards, in rich and poor countries alike.

The fact that companies have become less efficient at converting labour, buildings and machines into goods and services is beginning to trouble policy makers around the world.

Janet Yellen cited weak US productivity as a cause of “the tepid pace of wage gains in recent years” on Friday. Also last week, George Osborne, UK chancellor, set higher productivity as the most important economic priority of the new government. “Our future prosperity depends on it,” he said.
Raising productivity is seen as one of the only ways to improve living standards, at a time when advanced and some emerging economies are seeing ageing populations and a rapidly increasing retirement rate. Without stronger productivity growth, the world may have to get used to much lower rates of economic expansion.

In a report due to be published next month, the Conference Board said the slowdown in productivity growth is only partly the result of a hangover from the 2008-09 economic crisis and reflects more deep-seated global economic problems.

With the global supply of workers reaching a peak, the trend must be reversed for people to enjoy rising prosperity in the years ahead, creating a “huge challenge” for companies, the Conference Board said.

Economists disagree on the precise cause of the weakness in productivity around the world, but some trends stand out.

More optimistic explanations centre around the effects of the crisis itself, which encouraged companies to hunker down and not invest in better technology and processes. This should wane as the global recovery continues.

But Mr van Ark says a temporary weakness is “not the whole story”, and there are bigger trends at work. He says emerging markets are reaching the limits of easy growth based on catch-up technology while advanced economies are concentrating on services, which tend to have less scope for rapid efficiency gains.

New technology has centred on consumer products, which have made people better off and able to do more than in the past, but have not necessarily improved the quantity or efficiency of their work.


And there are some signs, Mr van Ark said that the regulatory burden is increasing, but he added this was “hard to prove”.

There is little evidence the slowdown stems from lazy or inefficient employees. “Something is going wrong with the way firms are equipping their workforces to produce more,” Mr van Ark said.

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