Magazine article International Productivity Monitor

Editor's Overview

Magazine article International Productivity Monitor

Editor's Overview

Article excerpt

THIS 17TH ISSUE OF THE International Productivity Monitor published by the Centre for the Study of Living Standards contains six articles. Topics covered are the effect of labour market regulation on productivity in OECD countries; the relationship between the growth in labour productivity and real wages in Canada; the importance of higher education and market rigidities for the diffusion of information and communications technology (ICT) in OECD countries; the importance of the ICT-producing sector for productivity growth in Finland and Sweden; the appropriate measurement of total factor productivity (TFP) in unstable economies with an application to Argentina; and recent and proposed changes to US National Accounts.

It has been argued that certain labour market reforms that increase labour utilisation may at the same time reduce productivity growth. To assess this hypothesis, Andrea Bassanini and Danielle Venn of the OECD investigate the impact of several labour market policies on productivity. At an aggregate level, pro-employment policy reforms can affect productivity indirectly by changing the skills composition of the labour force, or directly by, for example, changing incentives for workers or firms to invest in training, facilitating the movement of resources across industries or improving the quality of job matches. Based on their empirical analysis, the authors conclude that more stringent employment protection legislation and less generous unemployment benefits are likely to reduce measured aggregate labour productivity, while increases in the ratio of the minimum wage to the median wage and additional parental leave appear to increase labour productivity.

The most direct mechanism by which labour productivity affects living standards is through real wages. Yet, between 1980 and 2005, the median real earnings of Canadians were unchanged, while labour productivity rose 37 per cent. In the second article, Andrew Sharpe, Jean-Francois Arsenault and Peter Harrison of the Centre for the Study of Living Standards examine why growth in real wages has lagged behind growth in labour productivity in Canada. They find that the divergence between median earnings growth and labour productivity growth can be explained by four factors of roughly equal importance: inconsistent measurement, in particular, the failure to account for important increases in supplementary labour income; an increase in income inequalities; a decline in labour's terms of trade expressed as the ratio of output prices to consumer prices; and a decline in labour's share of national income. The failure of real median earnings to track labour productivity growth raises an important question: if Canadians are not seeing the benefits of labour productivity growth, why should they view labour productivity growth as an important societal goal?

Since the early 1990s, investment in ICT has been one of the key drivers of labour productivity growth in OECD countries, yet one observes significant gaps in ICT diffusion among major advanced countries. In the third article, Gilbert Cette and Jimmy Lopez of the Banque de France and the Universite de la Mediterranee conduct an empirical investigation into the gap in ICT diffusion between European countries and the United States. They conclude that compared to the United States, lower ICT diffusion in the other major advanced countries can be largely explained by a smaller share of the population with higher education and a higher level of rigidity in labour and product markets. …

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