Presentation made at the Workshop of the Commission for Economic Policy on International trade and globalisation – Implications for regional growth, employment and industrial renewal in Brussels, Belgium on 22 January 2018, by Alexander Lembcke, OECD Centre for Entrepreneurship, SMEs, Regions and Cities.

1. PRODUCTIVITY AND JOBS
IN A GLOBALISED WORLD:
(HOW) CAN ALL REGIONS
BENEFIT
Committee of the Regions, Brussels, 22 January 2018
Workshop on International trade and globalisation – Implications for regional
growth, employment and industrial renewal
Alexander C. Lembcke
Economic Analysis, Statistics and Multi-level Governance Section
OECD Centre for Entrepreneurship, SMEs, Regions and Cities

2. 0
0.01
0.02
0.03
0.04
0.05
0.06
0.07
0.08
0.09
0.1
Within countries Across countries Total inequality
Theil index for GDP per capita (European TL2 regions)
Inequality across European regions
declined, but not within countries
75%
25%
50%
50%
Source for all slides in this presentation (unless otherwise specified) is:
OECD (forthcoming) Productivity and Jobs in a Globalised World: (How) Can All Regions Benefit?
2

3. Long-term decline in productivity
growth rates: not just the crisis
Source: OECD Productivity database; moving averages (t, t-1, t-2)
-1
-0.5
0
0.5
1
1.5
2
2.5
3
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
%
Japan United States Euro area (19 countries)
Financial crisis
Recent aggregate trends of labour productivity growth, 1997-2014
3

4. Productivity gaps between frontier firms
and other firms are widening
Source: Andrews, Criscuolo and Gal (2015).
Labour productivity (2001 = 0.0), 2001-09
Average labour productivity in the 100 globally most productive “frontier” firms
in a sector and all other firms.
4

5. European frontier regions tend to be urban,
catching-up regions rural or intermediate
TL3 regions, 2000-2014
Frontier regions are those with the highest labour productivity (per worker
GDP) accounting for at least 10% of total employment.
Catching-up/diverging regions grew 5% more/less over a 15-year period
than their country’s frontier
5

6. Not all regions
are diverging
Countries follow 2 models
Catching up supports
productivity growth
• AUT, CZE, DEU,
ESP, ITA,
POL, PRT,
ROU
The “frontier” is
pulling away
• BGR, DNK, FIN,
FRA, GBR, GRC,
HUN,
NLD,
SVK,
SWE
6

7. 55 000
65 000
75 000
85 000
95 000
105 000
2000 2002 2004 2006 2008 2010 2012 2014
Top 10% Bottom 90%
Average labour productivity (2010USD)
1% per year
1.1% per year
The challenge of combining growth,
catching up and inequality reduction
0.13
0.14
0.15
0.16
0.17
0.18
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Catching up dominates Frontier pulls away
Average inequality in per capita GDP across TL3 regions (Gini)
Catching up dominates: AUT, CZE, DEU, ESP,
ITA, POL, PRT, ROU
Frontier pulls away: BGR, DNK, FIN, FRA,
GBR, GRC, HUN, NLD, SVK, SWE
55 000
65 000
75 000
85 000
95 000
105 000
2000 2002 2004 2006 2008 2010 2012 2014
Top 10% Bottom 90%
Average labour productivity (2010USD)
1.6% per year
0.9% per year
7

8. • Well-functioning cities
– Home to knowledge-intensive (traded) sectors
– Larger markets can support economic diversity and
dynamism
– Agglomeration economies (beyond borders)
• Tradable sectors (that could be traded)
– Face competition even if they are not traded
– Might overcome market size and institutional constraints
– Avoid economic imbalances from excessive expansion of
non-tradables
What supports catching up?
8

9. • The distinguishing feature of “tradable” sectors is that they are exposed to
international competition
• Delineating tradable and non-tradable sectors is not straightforward in practice
• As sectors are highly aggregated in regional data the aim is to find a
classification that captures mostly tradable/non-tradable activities
The OECD Regional Outlook 2016 classifies sectors as:
9
Classification of tradable sectors:
exposure to international competition
Tradable sectors Non-tradable sectors
A: agriculture, forestry and fishing F: construction
B-E: industry (manufacturing, mining and
quarrying, supply of utilities: electricity, gas
water, etc.) excluding construction
G-I: wholesale and retail trade, transport,
accommodation and food service activities
J: information and communication L: real estate activities*
K: financial and insurance activities M-N: professional, scientific and technical
activities, administrative and support service
activities
R-U: arts, entertainment and recreation, other
service activities, activities of household and
extra-territorial organisations and bodies
O-Q: public administration, defence, education,
human health and social work activities
* excluded in parts of the analysis

10. 2000-07 2008-14
Expansion and decline in non-tradables,
Norte (Portugal)
Manufacturing
Tradable
services
Agriculture
Non-tradable
services
Utilities and
resource
extraction
-98 000
+12 000
+65 000
-3
-2
-1
0
1
2
3
4
5
-4 -3 -2 -1 0 1 2 3
Employment growth, %
Labour productivity growth, %
Manufacturing
Tradable
services
Agriculture Non-tradable
services
Utilities and
resource
extraction
-56 000
-7 000
-77 000
-3
-2
-1
0
1
2
3
4
5
-4 -3 -2 -1 0 1 2 3
Employment growth, %
Labour productivity growth, %
10
-98 000
-77 000
+12 000
+65 000
-7 000
-56 000
• Decline in manufacturing employment, but growth in productivity and output
point to significant restructuring
• Low-productivity jobs created in non-tradables were lost following the crisis

11. 11
The 2007-08 crisis revealed
unsustainable growth models
21 000
22 000
23 000
24 000
25 000
26 000
27 000
Per capita GDP
17 000
18 000
19 000
20 000
21 000
22 000
23 000
24 000
25 000
26 000
Per capita GDP
Andalusia, Spain Central Macedonia, Greece
• Across the OECD real per capita GDP in 2015 remained below 2007-08 levels in
135 out of 350 TL2 regions
• Construction- and consumption-fuelled growth turned out to be unsustainable

12. Regions with strong pre-crisis increases
in non-tradable sectors lost more jobs
12
Calculations based on 208 OECD TL2 regions. Those regions with the largest
shifts towards non-tradable sectors suffered higher employment losses, on
average, following the 2007-08 crisis.
-3.5
-3
-2.5
-2
-1.5
-1
-0.5
0
0.5
1
Less than 2.5
percentage points
increase
2.5 to 5 percentage
points
5 to 7.5 percentage
points
More than 7.5
percentage points
increase
Change in the share of non-tradable employment, 2000-07
Employment growth (%), 2008-14

13. -20
-10
0
10
20
30
40
50
60
70
80
-1
-0.5
0
0.5
1
1.5
2
2.5
3
3.5
4
Tradable
services
Industry Agriculture Non-tradable
services
%%
Annual average GVA growth, 2000-13 Percentage of total GVA (right axis), 2013
13
The nature of tradable sectors is changing
… but not in all parts of Europe
-20
-10
0
10
20
30
40
50
60
70
80
-1
-0.5
0
0.5
1
1.5
2
2.5
3
3.5
4
Tradable
services
Industry Agriculture Non-tradable
services
%%
-20
-10
0
10
20
30
40
50
60
70
80
-1
-0.5
0
0.5
1
1.5
2
2.5
3
3.5
4
Tradable
services
Industry Agriculture Non-tradable
services
%%
EU low-growth regions EU low-income regions Other European regions
?
Goods Tradable services

14. • Reigniting (public)
investment
• Structural reforms
(accompanied by
complementary policies
at the local level)
• Multi-level
governance and
territorial reforms
14
Broad policy responses
Investment (GFCF in 2005 EUR) in 2014 higher than in 2007-08
Investment set back by 7 years
8 - 12 years
13 - 16 years
17 - 19 years
20 or more years

15. • Strategically diversifying regional economies
– Specialised regions are more productive, diversified ones grow faster
– Manufacturing can be important, but tradable services are gaining
• Building on local strengths
– Linking investment in skills, FDI, and knowledge from the supply chain
– Taking advantage of opportunities for territorial branding
• Integration across actors and policies
– Skills development for place-based needs is a shared responsibility
– But skills policies might not be enough: trade shocks vs automation
Strategies to promote catching up and
employment growth
• … and more (launch 26 April 2018)
OECD (2018), Productivity and Jobs in a Globalised World:
(How) Can All Regions Benefit, OECD Publishing, Paris. 15

16. • OECD (forthcoming)
Productivity and Jobs in a
Globalised World:
(How) Can All Regions Benefit
• OECD (2016)
OECD Regional Outlook 2016:
Productive Regions for
Inclusive Societies
• Questions & Comments:
alexander.lembcke@oecd.org
Thank you
16

17. Higher paying jobs in traded clusters
17
Non-traded clusters
Music and Sound Recording
Communications Equipment
and Services
Video Production and
Distribution
Biopharmaceuticals
Financial Services
Insurance Services
Marketing, Design, and
Publishing
Business Services
Appliances
Nonmetal Mining
Agricultural Inputs and
Services
Apparel
Fishing and Fishing Products
Leather and Related Products
Forestry
Footwear
10 000
20 000
30 000
40 000
50 000
60 000
70 000
0 10 20 30 40 50 60 70 80 90 100
Average wage in 2010 EUR
Percentage of FTE in mostly urban areas, %