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CHAPTER 6
GLOBAL PRODUCTIVITY
FIGURE 6.1 Global labor productivity surges and declines Over the past 40 years, labor productivity growth in advanced economies and EMDEs has undergone several cycles of surges and subsequent declines. Surges in labor productivity growth have tended to occur during cyclical upswings and declines in downturns. The most recent surge and decline in productivity growth, and the largest in EMDEs since 1980, occurred in the run-up to, and following, the global financial crisis. A. Advanced economy and EMDE labor productivity growth Percent 8
Advanced economies
B. Labor productivity surges and declines following global slowdowns EMDEs
Advanced economies
Percentage points 4
EMDEs
2 6
0
4
-2
1981 1985 1990 1995 2000 2005 2010
2018
Peak 1984- Peak 199486 95
Peak 2000
Decline
Surge
Decline
Surge
Decline
Surge
Surge
0 -2
Decline
-4 2
Peak 200407
Sources: Conference Board; Kose and Terrones (2015); Penn World Table; World Bank, World Development Indicators. Note: EMDEs = emerging market and developing economies. A. Labor productivity growth in advanced economies and EMDEs constructed as GDP-weighted average growth rates, measured at 2010 prices and market exchange rates. Shaded regions indicate global recessions and slowdowns (1982, 1991, 1998, 2001, 2009), as defined in Kose and Terrones (2015). B. Each surge in productivity shows the increase in productivity growth from its lowest point to its peak rate in advanced economies and EMDEs, with the lowest point being the weakest rate of growth in the five years preceding its peak. The decline is calculated as the decline to the lowest rate of growth in the five years following the peak of productivity growth. Peaks do not always occur in the same year in advanced economies and EMDEs. The range over which these peaks occur is indicated on the x axis.
may drive a larger decline in productivity growth even than experienced during the global financial crisis (World Bank 2020, chapter 2). Yet lasting per capita income growth and poverty reduction depend on sustained labor productivity growth, stripped of such short-lived swings. Sustained labor productivity growth may be driven by capital-deepening (growth of capital per unit of labor input) or by technological and organizational changes, including the adoption of more efficient methods of production, in some cases incorporated through capital investment (Hulten 1992). The COVID-19 pandemic may trigger lasting organizational and technological changes to the way businesses operate. These could be adverse to productivity growth if they erode capital or disrupt the accumulation of physical or human capital (chapter 2). However, pandemic-induced structural changes could also have productivity-enhancing effects, such as a “cleansing” effect, eliminating the least efficient firms and encouraging the adoption of more efficient production technologies (Caballero and Hammour 1994).3 Although such effects could result in faster overall per capita income gains, they may also displace workers from their current roles, increasing income inequality. 3 The threat of labor shortages because of social distancing could foster a wave of automation in certain industries (Leduc and Liu 2020).
