Conference Board, Productivity, Global Competitiveness, Labor

The Conference Board's report on productivity and global competitiveness

20 Jan 2006 | (News)

The 10 new EU member states in Central and Eastern Europe delivered a spectacular acceleration in labor productivity growth in 2005 according to The Conference Board’s annual analysis of global productivity trends, Performance 2006: Productivity, Employment and Income in the World’s Economies. On average, the EU’s new member states (“EU10”) increased labor productivity growth rate from 4.1% in 2004 to 6.2% in 2005.  Most of the EU 10 showed an improvement in productivity growth but Poland (from 4.1 to 7.7%), Hungary (from 3.7 to 6.3%) and Slovakia (from 3.9 to 5.5%) registered the most marked increases. Remarkably, Poland’s productivity level is now higher than South Korea’s.

In contrast, most countries in the developed world, including North America, Western Europe and developed Asia experienced a slowdown in productivity growth in 2005 with rates in the 1.5 to 2% range. Productivity growth in the EU-15 dipped from 1.4% in 2004 to 0.5% in 2005 caused in part by a sharp fall in productivity gains in major economies such as the UK (which declined from 2.3 in 2004 to 0.9% in 2005) and continued slow growth in Germany (at 0.9%). In addition there were large productivity slowdowns of more than 2 % in Finland, Belgium and Luxembourg and actual declines in productivity in Italy and Spain (minus 0.9 and minus 1.3 % respectively).  Ireland, which topped the EU-15 league for 1995-2003, also saw a slowdown to less than 1.5% since 2004.  Productivity growth in France remained broadly stable at 1.5% in 2005, down marginally from 1.6% in 2004.
    
Dr Bart van Ark, Director for The Conference Board’s international economic research program and co-author of the report, said:

“While productivity gains in the large European countries plod along, the emerging markets of Central and Eastern Europe and Asia are catching fire. Economies such as China and Poland are accelerating to around 8%*.

Many of the EU 15 member states are only slowly coming to terms with the challenges that the world economy places on all advanced and emerging economies to realign competitive forces. These developments underline the urgency to deal with structural reforms and stronger innovation efforts.” 

Poor productivity growth in the EU-15 is part of the concern among European CEOs about the pace and direction of economic reform within the European Union.  In a survey of business leaders conducted by The Conference Board at the end of 2005, European CEOs believe business flexibility is the number one challenge facing companies in Europe, alongside speed to market and adapting to change.

Catherine Guillemineau, senior European Economist at The Conference Board, said:

“While Europe may see a cyclical rebound this year, European productivity growth in the long term will depend on the structural characteristics of the economy, including the flexibility of labor and product markets, which foster the reallocation of labor and capital from less to more productive economic activities.”

The Conference Board report also highlights a continuous erosion of comparative productivity levels in Europe.  For example, even though France still had an hourly productivity level 12% above the U.S. level in 2005, this gap narrowed by 4 percentage points from 2000. Similarly, productivity levels in Germany fell more than 5 per cent ahead of the U.S. level in 2000 to approximately the same level as the United States in 2005.

The Conference Board is one of the few providers of comprehensive, worldwide measures of labor productivity, which is a powerful indicator of economic efficiency. Labor productivity, which measures the amount of output obtained for each hour of work, determines a nation’s living standards (measured by per capita income). The more hours people work and the higher the level of productivity, the higher is per capita income.

* Estimates for China are only available until 2004.

Download the full report Productivity and Global Competitiveness

To arrange a spokesperson interview please contact:
Elizabeth Jay or Andrew Reid on + 44 207 839 4321 or elizabeth.jay@fishburn-hedges.co.uk
Rosa Correia on + 32 2 679 5059 or rosa.correia@conference-board.org

ABOUT THE AUTHORS

Bart van Ark is Director of The Conference Board’s international economic research program and a recognized expert on international comparisons of productivity and living standards. Dr. van Ark is Professor of Economics at the University of Groningen (The Netherlands), where he plays a key role in the international Comparisons of Output Productivity project. His work focuses on Europe, North America and Asia.

Catherine Guillemineau is a senior economist in Economic Research at The Conference Board. Ms Guillemineau previously worked at the European Central Bank in Frankfurt and has an extensive experience in working on European economies. She carried out structural analyses of euro area countries, in particular related to wage negotiations and to business cycle indicators, and developed forecasting tools.

Robert H. McGuckin is Director of Economic Research at The Conference Board, and an expert on productivity, industrial organization, economic indicators and statistics. Formerly, Dr. McGuckin was chief of the Center for Economic Studies at the US Bureau of the Census, where he guided development of the Longitudinal Research Database and conducted significant research on productivity growth.

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