Press release - Is weak productivity growth inevitable?
Economic growth has remained relatively weak in the advanced economies since the global economic and financial crisis of 2008-2009: weak in the light of the growth rates seen in the years preceding the crisis, and weak compared to the growth rates achieved following previous crises. This unexpected inertia is due partly to a decline in labour productivity growth, which is currently still sluggish. As productivity gains are a key determinant of long-term material living conditions, this situation is naturally causing concern.
Multiple factors have been suggested to explain this state of affairs. Structural influences include the less revolutionary nature of recent innovations, a hiatus in the spread of technologies, waning economic dynamism, an ageing labour force, deceleration of world trade, increasing inequality and the slower growth of human capital. Cyclical factors closely linked to the great recession of 2008-2009 include the past credit squeeze, declining investment, depletion of human capital and a deterioration in the allocation of resources within the economy.
The question worrying many economists concerns whether the phenomenon is permanent or temporary. Today, who can predict how productivity gains will look in the future? Those gains will depend on the economic benefits of current and future technological progress. They will also be affected by certain structural trends, such as demographics. And finally, they will reflect the policies adopted to encourage investment, business start-ups and competition, to reduce inequality, improve access to education and training, and facilitate the process of creative destruction.
To some degree, the virtually continuous deceleration of productivity growth over recent decades suggests that the readily attainable gains of economic development have already been achieved. The increased concern for the environment and measures to combat global warming could also reduce future productivity gains in favour of better quality, fairer and more sustainable growth. In this context, the chances of a return to past growth rates do not look good. However, at individual country level, the capacity to implement visionary structural reforms could make all the difference.