the-future-of-productivity-peterson-institute-for-international-economics-washington-dc-9-july-2015
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THE FUTURE OF PRODUCTIVITY
Peterson Institute for International Economics, Washington D.C., 9 July 2015
Catherine L. MannOECD Chief Economist
… productivity isn't everything, but in the long run it is almost everything.
Paul Krugman, 1994
Launch of the book: Adalet McGowan, M., D. Andrews, C. Criscuolo and G. Nicoletti (2015), The Future of Productivity OECD, Paris.
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• Productivity: Why does it matter?– Potential growth– Labour productivity/Income per capita
• Productivity: What is wrong?– Broken diffusion machine– Misallocated resources, esp. skills
• Policies to revive productivity growth
Road Map
3
A peek at policy channelsFramework Policies, Demand Conditions and..
Productivity growth
Skills Mismatch
Innovation and Diffusion
Wages and Income
Distribution
Investment KBC
Productivity is about:
Working smarter, not working harder
More output by better combining inputs, via:
new ideas
technological innovations
new business models
more efficient resource allocation.
Productivity crucial for potential growth
Productivity: What is it, Why it Matters
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Potential Growth: Who cares? What’s wrong? Promises, Promises
Source: June 2015 OECD Economic Outlook database.
Contributions to average annual percentage change of potential GDP per capita
Labour productivity (drives income/capita) slowed even before the crisis…why?
Labour productivity growth since 1990GDP per hour worked (China and India refer to GDP per worker)
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Since the crisis, sluggish investment
Business investment in different cyclesCyclical peak in OECD real business fixed investment=100
(date of peak indicated)
t 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 2880
90
100
110
120
130
140
150
80
90
100
110
120
130
140
150
t=1973Q4 t=1981Q4 t=2000Q3
t=2008Q1
Quarters since the peak
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Prospects going forward?
Economic odd couple Robert Gordon, left, and Joel Mokyr encapsulate the debate on the future of innovation. ROB HART FOR THE WALL STREET JOURNAL “”Economists Debate: Has All the Important Stuff Already Been Invented? By Timothy Aeppel, June 15, 2014 10:38 p.m. ET
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Problem is not innovation, it’s diffusionSolid growth at the global productivity frontier but spillovers disappointed
Labour productivity; index 2001=0
“Frontier firms” corresponds to the average labour productivity of the 100 globally most productive firms in each 2-digit sector. “Non-frontier firms” is the average of all other firms. “All firms” is the sector total. The average annual growth rate is shown in parentheses.
Manufacturing Sector Services Sector
0.0
0.1
0.2
0.3
0.4
0.5
2001 2002 2003 2004 2005 2006 2007 2008 2009
Frontier firms(3.5% per annum) All firms
(1.7% per annum)
Non-frontier firms(0.5% per annum)
-0.1
0.0
0.1
0.2
0.3
0.4
0.5
2001 2002 2003 2004 2005 2006 2007 2008 2009
Frontier firms(5.0% per annum)
All firms(0.3% per annum)
Non-frontier firms(-0.1% per annum)
Thinking about diffusion: global frontier to national frontier to laggards
Global frontie
r
National
Frontier
Laggards
A stylised depiction of how productivity spreads matter for policy
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Structural policies shape diffusion
Estimated frontier spillover (% pa) associated with a 2% point increase in MFP growth at the global productivity frontier
Global connections Reallocation Knowledge-Based Capital
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Global frontier to national frontier: different countries, different issues
How much higher would be overall manufacturing sector labour productivity if national frontier (NF) firms were as productive and large as global frontier (GF) firms?
NF firms in Italy have productivity levels close to the GF but they are relatively small
NF firms in US have productivity levels 10% lower than the GF but they are relatively big
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Survival, growth, or Outthe dynamics of creative destruction
Firm growth and survival rates, by firm age
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• Higher and more efficient public investment in basic research.– Role for international co-operation?
• Enabling experimentation of firms with new technologies and business models.– Reduce barriers to firm entry and exit to
enable high productivity firms to grow and low productivity firms to exit.
Keep the innovation engine running
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Keep the innovation engine running
Est. frontier spillover (% p.a.) associated with 2% point increase
in MFP growth at the frontier
Average across selected OECD countriesIndex 1992=100
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• Pro-competition reforms to product markets, especially in services, to maximise benefits of GVC participation.
• Closer collaboration between firms and universities.
• A level playing field that does not favour incumbents over entrants.
Revive the diffusion machine
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Revive the diffusion machine
Estimated frontier spillover (% p.a.) associated with a 2% point increase in MFP growth at the global productivity frontier
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• Policies that promote efficient firm exit:– Bankruptcy legislation that does not excessively penalise
business failure.
• Policies that make labour mobility easier:– Housing market policies (e.g. low transaction costs affecting
buying and selling of dwellings) that facilitate residential mobility.– Employment protection legislation that does not impose too
heavy or unpredictable costs on hiring and firing.
• But also policies to help workers adapt to technological change and cushion the costs of reallocation:– Promotion of adult and lifelong learning. – Well-designed social safety nets.– Portable health and pension benefits.
Reallocate scarce resources to the most productive firms
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Reallocate resources to most productive firms and support worker transition
The probability of skill mismatch and public policies
Entry and Exit Labour mobility Education
Future growth depends on productivityFramework policies are the keyContribution to growth in GDP per capita, 2000-2060 (annual average)
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• OECD (2015), “The Future of Productivity”. OECD, Paris• Adalet McGowan, M. and D. Andrews (2015a), “Labour
Market Mismatch and Labour Productivity: Evidence from PIAAC Data”, OECD Economics Department Working Papers, No. 1209.
• Adalet McGowan, M. and D. Andrews (2015b), “Skill Mismatch and Public Policy in OECD Countries”, OECD Economics Department Working Papers, No. 1210.
• Andrews, D., C. Criscuolo and P. Gal (2015), “Frontier Firms, Technology Diffusion and Public Policy: Micro Evidence from OECD Countries”, OECD Mimeo, forthcoming.
• Calvino, F., C. Criscuolo and C. Menon (2015), “Cross-country Evidence of Start-Up Dynamics”, OECD Science, Technology and Industry Working Paper.
• Criscuolo, C., P. Gal and C. Menon (2014), “The Dynamics of Employment Growth: New Evidence from 18 Countries”, OECD Science, Technology and Industry Policy Papers, No. 14.
• Saia, A., D. Andrews and S. Albrizio (2015), “Public Policy and Spillovers From the Global Productivity Frontier: Industry Level Evidence”, OECD Economics Department Working Papers, No. 1238.
The following reports detail the results: