Sluggish Productivity Growth Holding Back World’s Economies
For the second straight year, productivity growth weakened substantially across the globe in 2012, according to a new report from The Conference Board. The 2013 Productivity Brief, based on data from The Conference Board Total Economy Database , reports that productivity grew by 1.8 percent worldwide in 2012, down from 2.3 percent in 2011 and 3.6 percent in 2010. With the exception of the 2008–9 recession, this represents the slowest productivity growth in a decade.
Labor productivity growth — that is, additional output per unit of labor — relates output growth to changes in the employment market. In 2012, world GDP growth fell to 3.1 percent from 3.8 percent in 2011, while employment growth fell only slightly from 1.4 to 1.3 percent. “What makes this year’s Brief so unique is that poor productivity performance has been so widespread that there are very few countries or regions in 2012 that showed any productivity improvement at all,” said The Conference Board Chief Economist Bart van Ark. “Facing slow global demand, companies are using labor and capital less efficiently, in turn forcing further cutbacks.”
Productivity growth is expected to remain anemic — 1.9 percent — this year.
“In 2013 and beyond, productivity will be key to the performance of the global economy,” van Ark said. “Even if labor markets recover more strongly than predicted, GDP growth is unlikely to accelerate past projections without a turnaround that makes jobs more productive, rather than simply more numerous. The situation is clearly resonant in The Conference Board CEO Challenge 2013 , our recent global survey that found CEOs intensely focused on the internal capabilities of their organizations. For such business leaders, the urgency of the productivity challenge means investing in the training, innovation, and operational excellence necessary to shape a more efficient workforce.”
Stagnant Output Undermining Productivity of Mature Economies
On average, the productivity slowdown across the advanced economies in 2012 was to a much greater extent attributable to declining output growth, rather than labor market performance.
In the United States , total hours worked grew 2 percent in 2012, doubling the previous year’s 1 percent growth. This renewed traction in the labor market was offset, however, by GDP growth that only rose from 1.8 to 2.2 percent. As a result, labor productivity growth fell dramatically to 0.2 percent —one of the slowest growth rates observed in the post-World War II period. Output per hour grew slower than 2012’s 0.2 percent just twice: in 1974 (-1.0 percent) and 1982 (-0.8 percent).
In the Euro Area, output and total hours worked both contracted in 2012. With the former decline outstripping the latter, growth in labor productivity in 2012 fell to 0.6 percent from 1.2 percent in 2011. At 2.3 percent, Spain posted the highest labor productivity growth within the currency bloc, driven by a large contraction (−3.7 percent) in hours worked. In Greece, at the other extreme, labor productivity fell at −1.3 percent. In Germany and France, the productivity growth rates also fell considerably in 2012. In Germany, output per hour increased 0.4 percent, down from 1.6 percent in 2011, and in France it dropped to −0.2 percent down from 1.4 percent in 2011.
Conditions in the wider European Union-27 largely mirrored those of the smaller 17-member bloc. Some Eastern and Central European economies were exceptions: Labor productivity in Poland grew 2.2 percent in 2012 and, with output per hour still just 38.7 percent that of the U.S., maintains substantial scope for improvement. In the United Kingdom, by contrast, a much larger than anticipated GDP contraction, coupled with stable increases in hours worked, turned labor productivity growth dramatically negative in 2012, at −1.3 percent. Output per hour worked in the U.K. now stands at just 80 percent of the U.S. level, some 10 percentage points lower than its French and German rivals.
In Japan , tepid recovery from the March 2011 tsunami — both GDP and total hours worked grew just 0.6 percent — left productivity growth stalled at 0 percent.
Silver Linings Harder to Find in Emerging Economies
In recent years, stagnant gains in the mature economies offered an opening for other economies to rapidly make up productivity gulfs that remains yawning in absolute terms. In 2012, however, emerging and developing economies — where labor productivity growth fell from 4.7 to 3.8 percent — contributed as much to the overall slowdown as their mature counterparts.
China still boasts among the largest productivity gains in the world. But after falling from 8.8 to 7.4 percent (largely on the basis of slowing GDP growth), labor productivity growth in 2012 was the lowest since 1999. As China maneuvers to climb the value chain, incremental efficiency gains will likely be harder to come by than the previous decade; the next leap will require investments in technology and innovation that take a significantly longer time to come to fruition. Likewise driven by slowing output growth as well as unique structural challenges, labor productivity in India grew at the slowest rate since 2002, falling to 3.7 percent in 2012 from 4.2 percent in 2011 (and 6.2 percent in 2010).
The only region in Asia — or, indeed, the world — to see widespread productivity acceleration in 2012 was the ASEAN countries in Southeast Asia , where strengthening domestic sectors offset the global slowdown in exports. Malaysia, the Philippines, Thailand, and Vietnam all saw labor productivity growth rates rise. Indonesia experienced a minor slowdown to 4.2 percent, still historically high.
A dramatic slowdown continued in Latin America , where labor productivity grew at just 1.2 percent in 2012, down from 2 percent in 2011 and 3.1 percent in 2010. Sputtering global demand has revealed serious underlying weaknesses in Brazil, where deteriorating output turned the productivity growth rate negative (−0.3 percent), compared to 4.1 percent in 2010. Mexico has held up much better; though its labor productivity growth fell to 0.7 percent in 2012, the decline was predicated on stable output growth and rapid expansion of employment.
Weakening oil prices and continued political unrest also slowed productivity growth in much of the Middle East . Meanwhile, labor productivity across Africa grew a modest 0.8 percent in 2012, tamped down by rapidly expanding workforces in many countries. In Russia , the growth rate fell slightly from 3.8 to 3.4 percent in 2012. Because employment only grew 0.3 percent, most of Russia’s output growth last year was driven by productivity gains.
Searching for a More Productive 2013?
At 1.9 percent, the Productivity Brief projects labor productivity growth will be nearly unchanged overall in 2013 – but rest on a slightly reordered constellation of regional trends. U.S. labor productivity should rise slightly, from 0.2 to 0.6 percent, while the Euro Area moves in precisely the opposite direction, from 0.6 to 0.2 percent. Within Europe, last year’s large discrepancies between countries are projected to narrow: Productivity will likely be flat in the U.K., with positive gains returning to France (0.2 percent) and ticking up in Germany (0.8 percent). But Spain’s impressive productivity growth is expected to plummet to 0.4 percent in 2013, as continued GDP contraction meets a labor market already pared to the bone.
Meanwhile, productivity growth is poised to soften further in China and, especially, India — where gains in labor productivity may fall to just 2.9 percent. Brazil’s situation remains fraught, but a modest strengthening of output combined with more cautious hiring plans should return Brazilian labor productivity to positive growth in 2013, at perhaps 1.2 percent. Likewise, the struggling Turkish economy is projected to see productivity growth improve from 1.0 to 1.6 percent, because of a labor market likely to decelerate even faster than GDP. Surprisingly, it may be Africa that offers the best hope in 2013 for substantial productivity gains driven by strong, accelerating output growth; several countries in the region — the world’s least productive in absolute terms — are positioned for burgeoning exports to other emerging markets and a rising middle-class consumer segment at home.
See 2013 Productivity Brief: Key Findings for additional data and detailed analysis at http://www.conference-board.org/pdf_free/economics/TED2.pdf