Decent work as a source of Decent work as a source of productivity in Europe productivity in Europe Finland’s EU Presidency Finland’s EU Presidency Employment Conference: Towards Higher Employment Conference: Towards Higher Productivity and Better Employment Productivity and Better Employment Dipoli, Espoo, 16 Dipoli, Espoo, 16-17 October 2006 17 October 2006 José Manuel Salazar José Manuel Salazar- -Xirinachs Xirinachs Executive Director, Employment Sector Executive Director, Employment Sector ILO ILO
Productivity isn’t everything, but in the long Productivity isn’t everything, but in the long run it is almost everything. A country’s run it is almost everything. A country’s ability to improve its standard of living over ability to improve its standard of living over time depends almost entirely on its ability time depends almost entirely on its ability time depends almost entirely on its ability time depends almost entirely on its ability to raise its output per worker… to raise its output per worker… (P. Krugman, 1990) (P. Krugman, 1990)
What determines or affects productivity? External and structural conditions Internal conditions Growing markets, effective demand � Good management & � Sectoral profile of the economy and � entrepreneurship flexibility for resource redeployment � Competition conditions Good technologies & equipment � A conducive enabling environment: � Respect for property rights � Access to resources � Clear, stable, predictable rules � Healthy and skilled workers Healthy and skilled workers A well governed economy A well governed economy � � Costs for doing business Finance (credit, prosperous � � Quality of infrastructure investors, venture capital) � Quality of Value chains-related � Physical and natural: energy, � industries and business services land, infrastructure Endogenous factors Exogenous factors of productivity of productivity Systemic competitiveness
Topics of Discussion Topics of Discussion The Productivity and Employment Challenges The Productivity and Employment Challenges I. I. in Europe in Europe Labour market dimension of productivity: the Labour market dimension of productivity: the II. II. relationship between employment stability, relationship between employment stability, relationship between employment stability, relationship between employment stability, flexibility and security. flexibility and security. Balancing and coordinating policies for good Balancing and coordinating policies for good III. III. labour market and productivity performance. labour market and productivity performance.
I. The Productivity and I. The Productivity and Employment Challenges Employment Challenges .
Productivity is a central part of Productivity is a central part of growth and employment strategies growth and employment strategies � New Lisbon strategy, the EU has an ambitious agenda New Lisbon strategy, the EU has an ambitious agenda � for growth and employment. for growth and employment. � The ILO has, with the decent work agenda, also a broad The ILO has, with the decent work agenda, also a broad � strategy for good jobs and productive employment. strategy for good jobs and productive employment. � Both strategies also include an employment strategy: � Both strategies also include an employment strategy: Both strategies also include an employment strategy: Both strategies also include an employment strategy: � � � European Employment Strategy European Employment Strategy � � Global Employment Agenda Global Employment Agenda � � Productivity is an aim for all these strategies and while Productivity is an aim for all these strategies and while � there might be short term trade there might be short term trade-offs between the offs between the productivity and the employment goal, experience shows productivity and the employment goal, experience shows both productivity and job gains over the longer term. both productivity and job gains over the longer term.
The US – EU15 Productivity Gap GDP per hour N o r w a y and per worker F r a n c e relative to the L u x e m b o u r g US, 2004 B e l g i u m U n i t e d S t a t e s (Source: ILO, I r e l a n d KILM) N e t h e r l a n d s D e n m a r k A u s t r i a G e r m a n y S w e d e n F i n l a n d I t a l y U n i t e d K i n g d o m A u s t r a l i a C a n a d a S w i t z e r l a n d J a p a n I c e l a n d S p a i n G D P p e r h o u r ( 1 9 9 0 U S $ ) G D P p e r p e r s o n e m p l o y e d ( 1 9 9 0 N e w Z e a l a n d U S $ ) 0 . 0 0 0 . 2 0 0 . 4 0 0 . 6 0 0 . 8 0 1 . 0 0 1 . 2 0 P e r c e n t a g e o f U S l e v e l
-0.2% -0.1% 0.0% 0.1% 0.2% 0.3% 0.4% 0.5% 0.6% Semiconductors the US + EU15 (1996-2000) (Source: ECFIN (2004), Annual Review ) Contributions of the 56 Industries to Overall Labour Productivity Growth in Office Machinery Clothing Chemicals Rubber & Plastics Textiles Motor Vehicles Furniture Basic Metals Air & Spacecraft Manufacturing Pulp & Paper But productivity gap only in certain sectors…. Metal Products Instruments Railroad Equipment Insulated Wire Ships & Boats Leather Telecom Equipment Mineral Products Oil & Nuclear Fuel Printing & Publishing Radio and TV USA Wood & Wood Products Electrical Machinery Mechanical Engineering Scientific Instruments Food, Drinks & Tobacco Wholesale Trade Retail Trade Real Estate Activities Aux.Financial Services Financial Services Communications Renting of Machinery Private Services Air Transport EU15 Insurance & Pensions Aux.Transport Activities Research & Development Land Transport Water Transport Legal & Advertising Computer Services Electricity, Gas & Water Other Business Activities Motor Sales & Repairs Construction Hotels & Restaurants Agriculture Public Admin & Defence Economy Fishing Rest of Forestry Mining & Quarrying Social & Personal Services Health & Social Work Education
II. The labour market II. The labour market dimension of productivity dimension of productivity Relationships between Relationships between employment stability employment stability-flexibility flexibility- security. security.
How does the labour market How does the labour market feature in the productivity debate? feature in the productivity debate? � Common argument: “Europe trails behind US because Common argument: “Europe trails behind US because � its labour markets are more rigid, inhibiting productivity its labour markets are more rigid, inhibiting productivity- enhancing change…” enhancing change…” � While it is true that US labour market flexibility is higher While it is true that US labour market flexibility is higher � (US average tenure = 6.9 years; EU15 = 10.7 years)… (US average tenure = 6.9 years; EU15 = 10.7 years)… � It is not evident that this explains the sectoral productivity � It is not evident that this explains the sectoral productivity It is not evident that this explains the sectoral productivity It is not evident that this explains the sectoral productivity � � gaps: gaps: � Europe was more productive than the US before 1996, despite Europe was more productive than the US before 1996, despite � longer tenure. longer tenure. � Europe has superior productivity than the US in Europe has superior productivity than the US in � countries/sectors with a high share of stable employment. countries/sectors with a high share of stable employment. � Other arguments such as lower R&D spending, a higher share of Other arguments such as lower R&D spending, a higher share of � ICT-intensive sectors, sectors less open to competition, are more ICT intensive sectors, sectors less open to competition, are more convincing… convincing… � Particularly since there is a positive productivity effect in stable Particularly since there is a positive productivity effect in stable � employment relationships, in particular when associated with employment relationships, in particular when associated with good workplace relations… good workplace relations…
Stability as a source of productivity Stability as a source of productivity Productivity benefits of employment stability (tenure) in French private sector Productivity benefits of employment stability (tenure) in French private sector • High shares of short High shares of short- tenure workers tenure workers associated with associated with 4-10 years of tenure negative negative negative negative 1-4 years of tenure productivity. productivity. Less than 1 year of <1 year = ↓ 0.02% ↓ 0.02% • <1 year = tenure • 1-4 years = 4 years = 0.05% 0.05% • 4-10 years 10 years = = 0.36 0.36% % -0.1 0 0.1 0.2 0.3 0.4 Productivity Growth Source: Kramarz & Roux, 1999. Source: Kramarz & Roux, 1999.
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