THE FUTURE OF
PRODUCTIVITY
… productivity isn't everything, but in the long run it is
almost everything.
Paul Krugman, 1994
Chiara Criscuolo
Directorate for Science, Technology and Innovation OECD
Understanding the Great recession: from micro to macro
Bank of England
London | 24 September 2015
Outline
1. Productivity: now more than ever
2. Thinking about productivity: frontier firms and
diffusion
3. How to revive productivity growth
4. Policy messages and issues for future research
2
PRODUCTIVITY: NOW MORE
THAN EVER
3
Cross-country gaps in GDP per capita mainly reflects productivity shortfalls
A. Percentage GDP per capita difference compared with the upper half of OECD countries¹
60
40
20
0
-20
-40
IRL
NLD
NOR4
USA
CHE
LUX³
IRL
NOR 4
USA
CHE
LUX³
AUT
AUS
SWE
DNK
DEU
CAN
ISL
BEL
FIN
FRA
GBR
OECD
EU 5
JPN
NZL
ESP
KOR
ISR
CZE
SVN
GRC
SVK
PRT
EST
POL
HUN
CHL
TUR
MEX
-80
ITA
Note: GDP/Population=(GDP/Employment) * (Employment/Population)
-60
B. Percentage difference in labour resource utilisation and labour productivity²
60
Labour productivity
Labour resource utilisation
40
20
0
-20
-40
Source: OECD (2015), Economic Policy Reforms: Going for Growth
NLD
AUT
AUS
DEU
DNK
SWE
CAN
ISL
BEL
FIN
FRA
OECD
GBR
EU 5
JPN
ITA
NZL
ESP
KOR
ISR
CZE
SVN
PRT
SVK
GRC
EST
POL
TUR
CHL
HUN
-80
MEX
-60
Productivity growth slowed across the
OECD, even before the crisis
Labour productivity growth since 1990
GDP per hour worked (China and India refer to GDP per worker)
Source: OECD calculations based on the Conference Board Total Economy Database.
5
Growth without MFP?
Contribution of production factors to GDP growth
1990-2013 (%pts)
Labour composition
MFP
Capital intensity
Labour quantity
10
8
6
4
2
0
90-00
00-07
07-13
90-00
00-07
07-13
90-00
00-07
07-13
90-00
00-07
07-13
90-00
00-07
07-13
90-00
00-07
07-13
90-00
00-07
07-13
90-00
00-07
07-13
-4
90-00
00-07
07-13
-2
United
States
Canada
New
Zealand
Australia
Europe-5
United
Kingdom
Nordics
France
Italy
Source: Conference Board Total Economy Database
Productivity will be the key driver of
future growth but uncertain outlook
Techno-pessimists
vs
techno-optimists
…
The debate is not settled
Why the slow-down? Taking a granular approach:
A) Is it because the productivity frontier is slowing ?
B) Is it because of misallocation and declining business dynamism?
C) …or something else?
•
Role of policies?
Economic odd couple Robert Gordon, left, and Joel Mokyr encapsulate the debate on the future of innovation. ROB HART FOR THE WALL STREET JOURNAL “”Economists Debate: Has All the Important Stuff Already Been Invented? By Timothy Aeppel, June 15, 2014 10:38 p.m. ET
7
THINKING ABOUT
PRODUCTIVITY:
FRONTIER FIRMS
AND
DIFFUSION
8
Source: Harvard Business Review
Analytical framework
1. Widespread heterogeneity: very high MFP and very low
MFP firms coincide within narrowly-defined industries.
2.
Adoption lags for new technologies across countries have
fallen, but long-run penetration rates once technologies are
adopted have diverged (Comin & Mestieri, 2013).
3. MFP growth of laggard firms is more closely related to
productivity developments at the national frontier (NF), as
opposed to the global frontier (GF) (Bartelsman, Haskel &
Martin, 2008)
9
Analytical framework
Global
frontier
Adoption
convergence
National
Frontier
Penetration
divergence
Laggards
10
The Increasing gap between firms
at the frontier and the others
Solid growth at the global productivity frontier but growth of the rest disappointed
Labour productivity; index 2001=0
Source: Andrews, D. C. Criscuolo and P. Gal (2015), “Frontier firms, technology diffusion and public policy: micro evidence from
OECD countries”, OECD Mimeo.
11
Possible explanations and robustness
1.
2.
3.
Technological diffusion slowed down
“Winner takes it all”
Replication and diffusion of the magic “bundle” is becoming
more difficult
Robustness to methodology
– Productivity measure (MFP, LP)
– Frontier definition (Top 5%, top 100)
• Not driven only by stronger selection at the top
– Long-time frontier firms also pull away
• No difference by ICT usage
• National frontier are also pulling away
The globally most productive firms –
who are they?
Mean firm characteristics: frontier firms and non-frontier firms
Selected OECD Countries, 2005 (unless otherwise noted)
Global Frontier Firms
Mean
Std Dev
Non-Frontier Firms
Number
Mean
Std Dev
Number
Difference
in means
Multi Factor Productivity (Solow)
Productivity
4.06
1.04
3657
2.51
0.91
294031
Employment
309
3770
3657
229
4119
294031
81
31
355
3657
19
343
294031
12 **
Turnover (€m)
250
1731
3657
59
754
294031
191 ***
Profit rate
0.57
0.33
3657
0.13
6.33
294031
0.45 ***
Age
21.5
20.3
3657
23.2
18.6
294031
-1.7 ***
0.47
0.50
3450
0.28
0.45
310765
0.19 ***
3.71
45.15
3657
0.90
56.17
294031
2.8 ***
Capital stock (€m)
1.5 ***
MNE status*
Probability
Patenting status
Depreciated patent stock
Source: Andrews, D. C. Criscuolo and P. Gal (2015), “Frontier firms, technology diffusion and public policy:
micro evidence from OECD countries”, OECD Mimeo.
13
Firms at the global productivity frontier
have become larger
Average of log employment for global frontier firms and the rest
Based on top 5% of MFP; index, 2001=0
Services
Manufacturing
Laggard
Frontier
0.25
0.2
0.15
0.1
0.05
0
-0.05
2001
2002
2003
2004
2005
2006
Source: Andrews, D. C. Criscuolo and P. Gal (2015), “Frontier firms, technology diffusion and public policy:
micro evidence from OECD countries”, OECD Mimeo.
2007
2008
2009
Firms at the global productivity frontier
have become older
Average age (years) of firms in the frontier and non-frontier groups
Manufacturing
Non-frontier
Se rvice s
Frontier
Non-frontier
30
30
25
25
20
20
15
15
Frontier
Notes: Frontier is measured by the top 100 f irms in each 2-digit industry and each year, based on Solow residual-based MFP.
Source: Andrews, D. C. Criscuolo and P. Gal (2015), “Frontier firms, technology diffusion and public policy:
micro evidence from OECD countries”, OECD Mimeo.
15
… consistent the broader decline in
business dynamism
Declining start-up rates across OECD countries
Source: C. Criscuolo, P. N. Gal and C. Menon (2014), “The Dynamics of Employment Growth: New Evidence from 18
Countries”, OECD Science, Technology and Industry Policy Papers, No. 14.
16
HOW TO REVIVE
PRODUCTIVITY GROWTH
17
How to revive productivity growth?
Three areas for policy:
1.
Pushing out the global frontier
– More and more efficient public investment in basic research.
• Role for international co-operation?
– Enabling experimentation of firms with new technologies and business models.
2.
More efficient resource allocation
–
Reduce barriers to firm entry and exit to enable high productivity firms to grow
and low productivity firms to exit.
–
“Resolving” Skill mismatch and upscaling a double whammy for both growth
and equity
3. Reviving the diffusion machine
–
From global to national frontier and from national frontier to laggards
•
through exposure to best practice (trade and GVC participation, FDI, mobility of
skilled workers) resource (e.g. skill) allocation and absorptive capacity (e.g. R&D;
18
University collaboration)
Aggregate gains from the frontier
magnified by efficient reallocation
How much higher would be the overall manufacturing sector
labor productivity if NF firms were as productive and large as GF firms?
NF firms in Italy have productivity levels
close to the GF but they are relatively small
… but up-scaling can be difficult
Post-entry growth - average size of young and old firms
Manufacturing
Startups (0-2)
Services
Old (>10)
Employees
80
Employees
80
70
70
60
60
50
50
40
40
30
30
20
20
10
10
0
0
Startups (0-2)
Old (>10)
Source: C. Criscuolo, P. N. Gal and C. Menon (2014), “The Dynamics of Employment Growth: New Evidence from 18
Countries”, OECD Science, Technology and Industry Policy Papers, No. 14.
The crisis: cleansing or scaring? The
jury is still out…
Average employment growth across the firm MFP distribution
Deviation from 2002-10 average; selected European countries – business sector
But comparison with past
recessions is difficult
Notes: Authors calculations based on production survey data from ESSLait. Unweighted average of 11 countries: AT, DE,
DK, FI, FR, IT, NO, NL, PO, SE, UK. A common (European) industrial structure is employed to aggregate industries.
21
The crisis: cleansing or scaring? The
jury is still out…
Net growth rate in differences from the 2001-11 average
Note: Average across all available countries. Net growth rates are calculated as net job creation over total average employment in the
biennium. Source: OECD, Dynemp Express database
22
The crisis: most jobs were destroyed by the
downsizing of old incumbents
Contributions to aggregate net job creation by entrants, young/old exitors, and
young/old incumbents.
Contribution to aggregate net job creation
%
Young (entry)
Young (exit)
Young (incumbents)
Old (exits)
Old (incumbents)
Total
8
6
4
2
0
-2
-4
-6
-8
Source: C. Criscuolo, P. N. Gal and C. Menon (2014), “The Dynamics of Employment Growth: New Evidence from 18
Countries”, OECD Science, Technology and Industry Policy Papers, No. 14.
23
POLICY MESSAGES
& ISSUES FOR FUTURE
RESEARCH
24
Policies to revive productivity growth
Framework policies
1.
2.
3.
Pro-competition product market reforms, esp. in services
Exit matters: bankruptcy legislation that does not excessively
penalise failure
Policies that do not inhibit labour mobility
Innovation policies
1.
2.
3.
Public investment in basic research
Collaboration between firms and universities
R&D fiscal incentives and IPRs but design is crucial
Research agenda
•
Analysis on new harmonized and representative data to study the micro drivers of
aggregate productivity.
– creative destruction process across countries and its contribution to productivity
growth;
– Within-sector productivity dispersion and efficient allocation of resources.
•
•
– Frontier growth; winner-takes-all and diffusion
New questions:role of finance; link between productivity and wage inequality
and their trends
Develop better policy indicators:
– Bankruptcy legislation;
– IP systems.
•
Political economy of productivity policy: e.g. productivity commissions in New
Zealand; Norway; Denmark etc.
References and More information…
• OECD (2015), “The Future of Productivity”. OECD, Paris
• Andrews, D., C. Criscuolo and P. Gal (2015), “Frontier Firms, Technology Diffusion
and Public Policy: Micro Evidence from OECD Countries”, OECD Mimeo,
forthcoming.
• Calvino, F., C. Criscuolo and C. Menon (2015), “Cross-country Evidence of Start-Up
Dynamics”, OECD Science, Technology and Industry Working Paper.
• Criscuolo, C., P. Gal and C. Menon (2014), “The Dynamics of Employment Growth:
New Evidence from 18 Countries”, OECD Science, Technology and Industry Policy
Papers, No. 14.
http://www.oecd.org/eco/the-future-of-productivity.htm
http://www.oecd.org/sti/dynemp.htm
Chiara.Criscuolo@oecd.org
27