Productivity – your countries need you!

Abstract

Increased global productivity could boost real wages, consumption, fiscal positions and alleviate fears of secular stagnation. But will it? Puzzles relate to the longer term global slowdown and to some countries' recent productivity‐less recoveries in jobs. We assess various explanations including mismeasurement, secular stagnation, financial sector malfunction and increased labour market flexibility. Our baseline forecast is for a moderate pro‐cyclical recovery in productivity but we show how downside risks imply it could be anaemic. Sustained weak productivity is a secular issue. Eight years after 2007, median productivity growth in OECD economies is less than Japan's was eight years into its lost decade. Aspects of secular stagnation and balance sheet adjustment have contributed. Measurement error may have played a role over the longer term. Recent experience divides recoveries into “haves” and “have nots” in terms of productivity and employment. The UK may finally be emerging from a “productivity‐less” recovery in employment after 2011; Spain and the Netherlands have experienced jobless recoveries in productivity; others, such as Canada and Sweden, have experienced pro‐cyclical (typically weak) recoveries in productivity; Italy hardly got going in either direction. Most theories provide, at best, a limited explanation for recent weak productivity performance. These include data mis‐measurement, increased labour market flexibility, financial sector malfunction and supply side secular stagnation. On balance, we think that a modest productivity bounce‐back could be imminent, caused by some demand recovery, tighter labour markets in major economies, higher real wages and firms deciding to invest more in capital, which enhances productivity and points the global economy towards normality. We also illustrate how global risk scenarios could dampen recovery. Negative skews imply mean G7 productivity growth across the scenarios would be an anaemic 1.1% in 2016, 0.5 percentage points (pp) lower than the baseline.