International Competitiveness: Labor Productivity Leadership and Convergence Among 14 OECD Countries

Abstract

From 1970 through 1991, the United States led other OECD countries in overall labor productivity, a key measure of national competitiveness. During this period, labor productivity in these countries converged, both towards the mean OECD labor productivity and the U.S. level of labor productivity. This suggests living standards among the OECD countries are becoming more alike. In the latter half of the period, the rate of convergence slowed. The industrial components of aggregate labor productivity offer insight into the causes of this convergence slowdown. Although most industry groups continued to converge between 1982 and 1991, two key industry groups--1) Manufacturing, and 2) Finance, insurance and real estate and business services--did not. Growth in Japanese labor productivity created the divergence in Finance, insurance and real estate and business services. Strong manufacturing labor productivity growth in United States high-technology industries was a primary cause of the divergence in Manufacturing. In 1991, the United States was among the labor productivity leaders in almost all manufacturing industries. It was, however, no longer the unequivocal labor productivity leader in these industries. Other countries had overtaken U.S. labor productivity in three of the nine industries and retained the lead in three other industries. Japan, for example, had a dominant lead in Chemicals and chemical petroleum, coal, rubber and plastic products. The United States, however, held a considerable lead in Fabricated metal products, machinery and equipment, which includes most key high-technology manufacturing industries. The slowdown of OECD labor productivity convergence toward the U.S. level since 1982 is a sign of continued U.S. competitiveness. The results of this analysis of selected OECD countries at the aggregate and industry levels suggest that the pundits of the 1980s were too quick to point to the demise of the U.S. competitiveness. These results show that although the United States? overall labor productivity lead is not as overwhelming as it once was, the United States continues to lead in overall labor productivity and in labor productivity in many important individual industries. This is not to say that there are no reasons to watch U.S. labor productivity measures closely and explore the roots of labor productivity changes. The situation is, however, much more complicated and not necessarily as dire as some analysts suggested during the 1980s.