Low productivity growth

Low productivity growth presents significant challenges and problems for economies and overall well-being. Low productivity growth hampers overall economic performance. When productivity fails to improve, it limits the ability of businesses to generate higher output within existing resources.

Stagnant output means stagnant wages. With limited improvements in productivity, businesses have less capacity to increase wages. This will result in reduced living standards for workers and increased pressure on politicians to fix the problem. We attribute much of the rise in political populism recently to voter frustration at the multidecade stagnation in real (inflation adjusted) wage growth.

In a globalised world, low productivity growth puts economies at a disadvantage. Countries with higher productivity rates tend to have a competitive edge in international markets. When productivity growth lags, it becomes challenging for businesses to compete effectively, leading to a loss of market share and reduced export potential.

Slower productivity growth means lower tax revenues, making it harder to fund public services and invest in infrastructure. Governments are under increasing pressure to spend more, but public debt trajectories are already on an unsustainable trend higher. Low productivity growth can impede innovation and technological advancement. When businesses struggle to improve productivity, they may have less incentive to invest in research and development, hindered by reduced profitability and limited resources. This stifles progress and the adoption of new technologies that could drive future growth.

There is no silver bullet to fixing low productivity growth. The solution requires getting a whole lot of little things right. Encouraging investment in research and development, promoting innovation, enhancing education and skills training are essential to boost productivity and foster sustained economic growth.