OECD Compendium of Productivity Indicators 2016

OECD

• Publisher: OECD
• Year: 2016
• eBook ISBN: 9789264258228
• Topic: Social Sciences
• Subtopic: Sociology
• Index: Social Sciences

Chapter 1. Measuring productivity

Productivity growth has been slowing in advanced economies since the mid-1990s, and more recently also in emerging economies. This decline has occurred at a time of rapid technological change, increasing participation of firms and countries in global value chains, and rising education levels in the labour force, all of which are generally associated with higher productivity growth. These seemingly contradictory facts have raised interest in the ”productivity paradox” and whether the productivity slowdown is a transitional phenomenon or a longer-term condition. This chapter presents relevant evidence and discusses different views and explanations about the observed productivity trends. It also describes emerging challenges in measuring productivity and the way forward.

Considerable attention has focused in recent years on the productivity slowdown observed across OECD economies, dating back as far as the mid-1990s and earlier in some cases. More recently the slowdown has begun to be commonly referred to as the productivity paradox: a reference to the fact that the current slowdown has occurred at a time of significant technological change.

The advent of new (typically) digital innovations, such as Big Data, was expected to have sparked off a new wave of productivity growth, similar to those seen in the past, e.g. as a result of electrification and the ICT wave in the 1990s. But this has not, at least, yet materialised, raising a number of still largely open questions, ranging from potential lagged effects of these new technologies, to structural versus cyclical factors, right through to measurement.

While the jury remains out on the underlying causes, a growing body of evidence suggests that measurement, or rather ”mis-measurement”, is not the cause, or at least not the major cause (Syverson, 2016; Byrne, Fernald and Reinsdorf, 2016). This chapter brings together much of the evidence presented in this Compendium to provide, as far as possible, a single narrative on the slowdown story, while also taking the opportunity to present additional insights on the role measurement may play, particularly with regards to the ”paradox”.

The productivity slowdown and paradox

Until the mid-1990s, labour productivity growth in many OECD countries was relatively high compared with the United States, partly reflecting convergence towards the international productivity frontier (Figure 1.1) with productivity levels rising and, in some cases, surpassing those of the United States (Figure 1.2).

However, in many countries, the catch-up process went into reverse in the following decade (mid-1990s to mid-2000s), as productivity growth in the United States accelerated on the back of ICT led gains, outpacing productivity growth elsewhere. More recently, in the last ten years, productivity growth has slowed significantly, including in the United States, almost flat-lining in some major economies, as the effects of the ICT revolution began to fade.

Figure 1.1. Growth in labour productivity in advanced economies since 1970

GDP per hour worked, percentage change at annual rate

Note: Southern Europe includes Greece, Italy, Portugal and Spain; Central Europe includes: Austria, Belgium, Germany, Luxembourg, the Netherlands and Switzerland; Nordic countries includes: Denmark, Finland, Iceland, Norway and Sweden.

Source: OECD Productivity Statistics (database), http://dx.doi.org/10.1787/pdtvy-data-en, February 2016.

StatLink http://dx.doi.org/10.1787/888933346166

Figure 1.2. Labour productivity levels in advanced economies

GDP per hour worked, as percentage of the US, constant 2010 PPPs

Source: OECD Productivity Statistics (database), http://dx.doi.org/10.1787/pdtvy-data-en, February 2016.

StatLink http://dx.doi.org/10.1787/888933346173

The productivity slowdown observed in recent years has occurred at a time of rapid technological change, increasing participation of firms and countries in global value chains, and rising education levels in the labour force, all of which are generally associated with higher productivity growth. These seemingly contradictory facts have revived the debate on whether the productivity slowdown is a transitional phenomenon or a longer-term condition and a constraint to economic growth (see box 1.1).

Box 1.1. Explaining the paradox?

A number of views have been put forward to address the apparent contradiction or paradox:

i) The transformative nature and scale of today’s technological breakthroughs pale into insignificance compared with those that took place in the last century (electricity, internal combustion engines, medical breakthroughs, telephone and radio, which took years to fully spread out through the economy). Recent innovations such as ICT, although also revolutionary, saw more rapid adoption and have had a shorter-lived impact on productivity growth (Cowen, 2011; Gordon, 2012).

ii) Structural changes. One factor that may explain the longer term decline in productivity growth across, particularly developed, economies may be the long term shift from manufacturing to services, including in particular lower productivity personal services. Demographic changes and more service orientated consumption patterns, notably from ageing populations may have exacerbated these impacts.

iii) The pace of technological progress has not slowed but adoption requires parallel innovation in organisational structures and business models (Brynjolfsson and McAfee, 2011; Baily, Manyika and Gupta, 2013). In other words, the next wave of productivity growth driven by technology breakthroughs in artificial intelligence, robotics, the Internet of Things, Big Data, 3-D printing, nanotechnology, biotechnology, may lag the innovations.

iv) A breakdown of the diffusion machine. Some studies (Andrews, Criscuolo and Gal, 2015; OECD, 2015a) suggest that the main source of the productivity slowdown is not a slowing in the rate of innovation by the most globally advanced firms, but rather a slowing of the pace at which innovations spread throughout the economy. In other words a breakdown of the diffusion machine that previously saw productivity spill-over from frontier firms, a factor behind the paradox.

v) Rent reducing transformation. Another possibility is that many of the new technologies, in particular those related to the digital economy such as Big Data and e-commerce, may have a different transformative role than earlier technological innovations. These earlier innovations, including classic ICT innovations such as computers and software, often resulted in profound changes to the production process of goods and services. Many of today’s new innovations, notably e-commerce and to a lesser extent some applications of Big Data, on the contrary, are less about transforming (i.e. introducing efficiencies in the production process) and more about expanding markets, where productivity gains are generated through improved economies of scale rather than transformative changes in the production process.

Indeed it is difficult to completely rule out the possibility that the effects may lower labour productivity (but not necessarily multifactor productivity), as competit...

Table of contents

• Title page
• Legal and rights
• Foreword
• Executive summary
• Reader’s guide
• Chapter 1. Measuring productivity
• Chapter 2. Economic growth and productivity
• Chapter 3. Productivity by industry
• Chapter 4. Productivity, trade and international competitiveness
• Chapter 5. Productivity trends in G7 countries
• Methodological annexes
• Annex A. Productivity measures
• Annex B. Measuring hours worked
• Annex C. Capital input measures at the OECD
• Annex D. The System of National Accounts 2008
• Annex E. Measuring producer prices and productivity growth in services
• Annex F. Purchasing power parities
• Annex G. Trends
• About the OECD