The Productivity Gap

Why does slow productivity growth translate into high costs?

Employment has increased, but labor productivity has remained flat and total factor productivity has declined.

Last, but not least, the US productivity boom is decelerating.

How long this boom in productivity growth will continue is anyone's guess optimists point to the fact that waiting behind the information technology revolution, ready for takeoff, is the biotechnology revolution, and behind that is a looming nanotechnology revolution.

The labor market has been devastated by the crisis and is deeply segmented, with productivity growth stalled.

To reclaim its promise, India must foster a new generation of productivity growth.

Indeed, students from Latin American countries consistently score at the very bottom of international achievement tests such as the Program for International Student Assessment (PISA) and the Third International Math and Science Survey (TIMSS).

Some of the countries that achieved the highest growth in labor productivity also lost the most competitiveness (e.g. Ireland).

But the higher productivity growth and pressures to cut costs that result test a society's cohesion.

It increases the profitability of manufacturing and non traditional agricultural sectors, which are the activities with both the highest level of labor productivity and with the most rapid rates of productivity increase.

Such efficiency gains from increasing the extent of the market and promoting specialization should have produced rapid growth in Mexican productivity.

The 5.7 annual productivity gain recorded in the second quarter seems likely to be matched in July September.

And so far, there is every sign that rapid underlying potential productivity growth persists.

The answer is that the underlying trend of productivity growth in the American economy continues to be exceptionally positive.

Moreover, European labor productivity figures are inflated by the fact that potential workers who would be less productive are much less likely to hold any jobs at all.

Low labor force participation is a result of the relatively low productivity of Puerto Rico s unskilled workers.

Rapid productivity growth is in the long run good news for America a higher productivity economy is better at enhancing human welfare.

Productivity grew, for a while, but it wasn t because of Wall Street financial innovations. The financial products being created didn t manage risk they enhanced risk.

The high tech revolutions behind the very real new economy, which have accelerated American companies productivity growth.

This includes policies aimed at restructuring the economy, improving productivity, and increasing labor force participation, especially by women.

Likewise, service sector liberalization will be essential to promoting productivity and creating jobs.

Productivity grew, for a while, but it wasn t because of Wall Street financial innovations.

Lack of manpower

This persistent acceleration in American productivity growth has, however, created a massive political problem for President George W. Bush.

Even structural reforms that will eventually increase productivity growth can be recessionary in the short run.

But that improvement appears to have been only a so called impact effect. Mexican productivity growth has since fallen back to its levels in the 1980's.

The current economic growth model considers the configuration of key factors of production land, labor, capital, and total factor productivity (a measure of efficiency).

Indeed, reforms of the past few years have already put Russia ahead of the EU in several areas, including tax legislation, fiscal policy (which aims at balanced budgets), and labor rules. Russia's agricultural policy is similarly more efficiency oriented than that of the EU.

In Western Europe, growth in labor productivity (output per hour worked) has been decelerating for decades.

So Greece s economy has scant ability to create sustained productivity growth and high human satisfaction.

But the combination of full employment and low growth rates actually points to an underlying problem very slow productivity growth.

Mexican productivity growth has since fallen back to its levels in the 1980's.

Russia's agricultural policy is similarly more efficiency oriented than that of the EU.

So a country where labor productivity is low will become an attractive location for foreign direct investment, and the resulting increase in the capital labor ratio will raise productivity.

So you would think that the same productivity revolution would happen in those countries.

Test GTK performance

In principle, with a healthier financial system, Japan s economy would have had more flexibility to meet these challenges to its productivity growth.

Reduced debt service costs would mean that the debt GDP ratio would start to fall, and government spending on infrastructure, education, healthcare, and redistribution could rise. Reduced government debt would also means more money available for private investment, providing a further boost to labor productivity.

Mexican autoworkers earn three times as much as Chinese autoworkers. So Mexico's auto industry must make huge advances in productivity if it is to maintain the same wage level in the future.

A truly modern economy will be a service economy that combines high productivity knowledge activities with indispensable personal service jobs.

One of the defining features of the past decades is the sharp increase in services productivity in the US none of that happened in Europe.

America, of course, is not alone among industrial nations that have seen productivity growth accelerate since the second half of the 1990's.

For example, MAS Holdings in Sri Lanka has incorporated into the workplace nursing stations, on site banking, and company buses that ease employees commutes and facilitate participation in sports programs. Such measures not only lead to increased productivity they also bolster loyalty, morale, and thus employee retention.

But the rate of productivity growth in construction is low, and the value of many credit fueled projects subsequently turns out to be low or negative.