24 Jan. 2013 | Comments (2)
Last week, The Conference Board released its annual update of the Total Economy Database™. This is a unique database that provides detailed information on GDP, employment, and labor productivity and its components across most countries in the world. Access to the dataset is free. The link above also provides information on the main trends in recent years.
In this post, we take a closer look at the growth in labor productivity and its components over the past 20 years. Labor productivity refers to how much is produced per hour of work. Labor productivity depends on the quality of the workers and on how much capital is available per employee (capital intensity). In addition, it is determined by the efficiency with which labor and capital are used in the production process, which is called total factor productivity (TFP).
The chart below reveals the average annual growth in labor productivity and its components across selected advanced countries from 1992 – 2012. It includes the contribution of capital intensity and TFP.
Chart 1 - Average annual growth in labor productivity and its components, 1992-2012
As can be seen in Chart 1, the main factor in rising labor productivity is the growth in the amount of capital per employee. Among the mature economies, contrary to expectations, we observed that Japan experienced the second highest growth in labor productivity, despite having the slowest average GDP growth among the group during the past 20 years. During that period, hours worked in Japan declined by an annual average of 1%, in part due to a decline in the working-age population. The shrinking labor force in Japan may have “forced” companies to get more out of their remaining workers. The demographic trends in Japan are in some way a preview to what many advanced economies will experience in coming decades. This leads us to wonder whether this situation will have a positive impact on labor productivity in advanced countries confronted with a shrinking labor force.
Meanwhile, Greece, Portugal, Spain, and Italy experienced the largest decline in TFP growth among the group. It will be important to follow whether these countries are able to get more output from their workers and capital, and whether that will lessen their crises.
We welcome your comments and insights.
 Labor quality - the other component of labor productivity - is omitted here since its impact is relatively small and varies little across countries.