Peterson Institute for International Economics (OECD Research Director Catherine Mann, July 9, 2015); BIS Annual Report (BIS Executive Claudio Borio, June 28, 2015) - Productivity (economics research)
4. THE FUTURE OF
PRODUCTIVITY
Peterson Institute for International
Economics, Washington D.C.,
9 July 2015
Catherine L. Mann
OECD Chief Economist
… productivity isn't everything, but in the long
run it is almost everything.
Paul Krugman, 1994
Launch of the book: Adalet McGowan, M., D. Andrews, C.
Criscuolo and G. Nicoletti (2015), The Future of Productivity
OECD, Paris.
http://www.iie.com/publications/papers/mann20150709.pdf
5. • Productivity: Why does it matter?
– Potential growth
– Labour productivity/Income per capita
• Productivity: What is wrong?
– Broken diffusion machine
– Misallocated resources, esp. skills
• Policies to revive productivity growth
Road Map
2
http://www.iie.com/publications/papers/mann20150709.pdf
6. A peek at policy channels
Framework Policies, Demand Conditions and..
3
Productivity
growth
Skills
Mismatch
Innovation
and Diffusion
Wages and
Income
Distribution
Investment
KBC
7. Productivity is about:
Working smarter, not working harder
More output by better combining inputs, via:
new ideas
technological innovations
new business models
more efficient resource allocation.
Productivity crucial for potential growth
Productivity:
What is it, Why it Matters
http://www.iie.com/publications/papers/mann20150709.pdf
8. 6
Potential Growth:
Who cares? What’s wrong? Promises, Promises
Source: June 2015 OECD Economic Outlook database.
Contributions to average annual percentage change of potential GDP per capita
9. Labour productivity (drives income/capita)
slowed even before the crisis…why?
Labour productivity growth since 1990
GDP per hour worked (China and India refer to GDP per worker)
10. Slowing investment in KBC
8
Investment in Knowledge Based Capital
Annual average growth
12. Since the crisis, sluggish investment
Business investment in different cycles
Cyclical peak in OECD real business fixed investment=100
(date of peak indicated)
10
80
90
100
110
120
130
140
150
80
90
100
110
120
130
140
150
t 2 4 6 8 10 12 14 16 18 20 22 24 26 28
t=1973Q4 t=1981Q4
t=2000Q3 t=2008Q1
Quarters since the peak
13. Prospects going forward?
11
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
http://www.iie.com/publications/papers/mann20150709.pdf
14. THE BREAKDOWN OF THE
DIFFUSION MACHINE
http://www.iie.com/publications/papers/mann20150709.pdf
15. Problem is not innovation, it’s diffusion
Solid growth at the global productivity frontier but spillovers disappointed
Labour productivity; index 2001=0
13
“Frontier firms” corresponds to the average labour productivity of the 100 globally most productive firms in each
2-digit sector. “Non-frontier firms” is the average of all other firms. “All firms” is the sector total. The average
annual growth rate is shown in parentheses.
Manufacturing Sector Services Sector
0.0
0.1
0.2
0.3
0.4
0.5
2001 2002 2003 2004 2005 2006 2007 2008 2009
Frontierfirms
(3.5% per annum) All firms
(1.7% per annum)
Non-frontier firms
(0.5% per annum)
-0.1
0.0
0.1
0.2
0.3
0.4
0.5
2001 2002 2003 2004 2005 2006 2007 2008 2009
Frontierfirms
(5.0% per annum)
All firms
(0.3% per annum)
Non-frontier firms
(-0.1% per annum)
16. Thinking about diffusion:
global frontier to national frontier to laggards
Global
frontier
National
Frontier
Laggards
A stylised depiction of how productivity
spreads matter for policy
17. Structural policies shape diffusion
Estimated frontier spillover (% pa) associated with a 2% point increase in MFP
growth at the global productivity frontier
Global connections Reallocation Knowledge-Based Capital
15
18. Global frontier to national frontier:
different countries, different issues
How much higher would be overall manufacturing sector labour productivity if national
frontier (NF) firms were as productive and large as global frontier (GF) firms?
NF firms in Italy have productivity levels
close to the GF but they are relatively small
16
NF firms in US have productivity levels 10%
lower than the GF but they are relatively big
22. Keep the innovation engine running
22
Est. frontier spillover (% p.a.)
associated with 2% point increase
in MFP growth at the frontier
Average across selected OECD countries
Index 1992=100
23. Revive the diffusion machine
Estimated frontier spillover (% p.a.) associated with a 2% point increase in MFP growth at
the global productivity frontier
24
24. Reallocate resources to most productive
firms and support worker transition
The probability of skill mismatch and public policies
26
Entry and Exit Labour mobility Education
26. Future growth depends on productivity
Framework policies are the key
Contribution to growth in GDP per capita, 2000-2060 (annual average)
27. • OECD (2015), “The Future of Productivity”. OECD, Paris
• Adalet McGowan, M. and D. Andrews (2015a), “Labour Market Mismatch and
Labour Productivity: Evidence from PIAAC Data”, OECD Economics
Department Working Papers, No. 1209.
• Adalet McGowan, M. and D. Andrews (2015b), “Skill Mismatch and Public Policy
in OECD Countries”, OECD Economics Department Working Papers, No. 1210.
• 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.
• Saia, A., D. Andrews and S. Albrizio (2015), “Public Policy and Spillovers From
the Global Productivity Frontier: Industry Level Evidence”, OECD Economics
Department Working Papers, No. 1238.
The following reports detail the results:
29
30. Persistent unusually low interest rates.
Why? What consequences?
Claudio Borio
Head of the Monetary and Economic Department
85th Annual General Meeting
http://www.bis.org/speeches/sp150628a.htm
31. 5
Interest rates have been exceptionally and persistently low
G3 real policy rates1
Bond yields2
–4
–2
0
2
4
70 75 80 85 90 95 00 05 10 15
%
1 Nominal policy rate less consumer price inflation excluding food and energy. Weighted averages for the euro
area (Germany), Japan and the United States based on rolling GDP and PPP exchange rates. 2 Yield per
maturity; for each country, the bars represent the maturities from one to 10 years.
Sources: Bloomberg; national data.
–1.50
–0.75
0.00
0.75
1.50
United Japan Germany France Switzerland Sweden
States
%
Trough 29 May 2015
Graph 1
http://www.bis.org/speeches/sp150628a.htm
32. 6
Financial booms, resource misallocations and productivity
Financial boom-busts do not cause damage just through demand
They also have a sizeable impact through supply
Three findings of BIS research (Graph 2)
Financial booms sap productivity growth as they occur ...
… mainly through resource misallocations …
… that have an even larger impact if a crisis occurs later on
Three implications
Money is not neutral
Misallocations cause another form of hysteresis
Misallocations weaken the effectiveness of demand
management
- Premium on balance sheet repair and structural policies
http://www.bis.org/speeches/sp150628a.htm
33. 7
Financial booms sap productivity by misallocating resources
Graph 2
Annual cost during a typical boom … … and over a five-year window post-crisis
Estimates calculated over the period 1980–2010 for 22 advanced economies. Resource misallocation = annual impact of
labour shifts into less productive sectors during the credit boom on productivity growth as measured over the period shown.
Other = annual impact in the absence of reallocations during the boom.
Source: BIS calculations.
http://www.bis.org/speeches/sp150628a.htm