1. Overview
The OECD Compendium of Productivity Indicators 2024 sheds light on recent developments in labour and multifactor productivity across OECD countries, looking at their key components and putting those developments into a historical perspective. It also offers granular productivity insights, based on industry composition and differences between SMEs and large firms.
The publication covers OECD countries and, where possible, G20 countries. In addition to the key findings on productivity measurement, this edition includes a chapter on experimental estimates of labour productivity growth in 2023 for OECD countries.
The economic environment deteriorated and global uncertainties increased in 2022, reflecting the start of war in Ukraine and the ensuing energy crisis.
While international trade contributed to higher productivity growth in the past, lately there have been signs of stalling globalisation (Jaax, Miroudot and van Lieshout, 2023[1]) and slowing engagement in global value chains. Experimental estimates of trade in value added (TiVA) indicators in 2022 point to a decline in the share of domestic value added in exports both on average across OECD countries and in large emerging-market economies (Mourougane et al., 2023[2]).
A decline in global foreign direct investment (FDI) can curtail the dissemination of technological know-how and hamper productivity growth by limiting the diffusion of innovation and best practices. Global FDI flows fell by 12% in 2022, reflecting deteriorating economic and business environment. International project finance and cross-border mergers and acquisitions (M&A) were particularly affected by tighter financing conditions, from rising interest rates and uncertainty in financial markets (UNCTAD, 2023[3]).
High inflation can deter investment and hamper productivity growth by increasing firms’ operating costs and disrupting long-term planning. In 2022, inflation in the OECD, as measured by the consumer price index (CPI), reached levels not recorded since the 1980s. While prices started to pick up already towards the end of pandemic, fuelled by supply bottlenecks, as well as rising demand coupled with public stimulus measures, the war in Ukraine exacerbated inflationary pressures through surging commodity prices. Inflation has started to be on a downward trend since the end of 2022 as energy costs have dropped and tightened monetary policy has started to take effect (OECD, 2023[4]).
Labour market developments are closely linked to productivity developments. Labour shortages can lead to increased workloads and stress for workers, and firms may face operational constraints, delayed projects and increased labour costs. All those factors can affect productivity. Labour markets were tight in 2022. The number of firms reporting labour shortages increased significantly in the post-COVID period. Labour shortages were broad-based, but particularly pronounced in manufacturing, accommodation and food services, and health and social work (Causa et al., 2022[5]). In Europe, labour shortages impacted both high-skilled and low-skilled occupations. (European Commission, 2023[6]).
Firm dynamism is a key driver of productivity. In 2022, firm entries were broadly flat in the OECD while the number of firm bankruptcies rose markedly in the course of the year according to the OECD Timely indicators of Entrepreneurship. Preliminary data for 2023 indicate a rebound in firm dynamism – both entries and exits - in the first half of 2023, while the number of bankruptcies has remained elevated.
In 2022, labour productivity – measured as GDP per hour worked – recorded negative growth rates in the euro area, in the United States and the OECD (Figure 1.1). The OECD and the euro area already experienced negative productivity growth rates in 2021, of similar magnitude. The United States, by contrast recorded a large drop in labour productivity growth, from 1.4% in 2021 to -1.6% in 2022, reflecting partly the counter-cyclicality of labour productivity growth. In addition, the strong employment creation during the same period suggests that part of the new jobs was created in low-productivity sectors (Chapter 5).
There were large cross-country differences in labour productivity growth: it was positive in about half of OECD countries, and negative in the other half, with varying magnitudes. Chile, Estonia and Costa Rica experienced the lowest annual growth rates. Conversely, Portugal, Poland and Latvia were the top performers (Figure 1.2).
Differences in labour productivity levels across the OECD area were large in 2022. Measured as GDP per hour worked in PPP terms, average labour productivity in the OECD area was slightly above USD 67 per hour in 2022, with a standard deviation across countries of about USD 32. Over the longer period, labour productivity levels across OECD countries have converged since 2000, as most of the countries with labour productivity levels below the OECD average in 2000 have caught up considerably since then. However, the productivity gap with the OECD average deepened for Greece, Israel, Japan, Mexico and New Zealand (see Chapter 3).
Multifactor productivity growth (MFP) slowed in 2022, and in some cases was even negative, in 10 of the 24 OECD countries for which data is available (Figure 1.3). The slowdown was particularly marked in the United States, where MFP growth fell from 1.7% in 2021 to -1.6% in 2022 (Figure 1.4), being the main driver of the negative labour productivity growth (see above and Chapter 4). Both labour and capital contributed to this slowdown. Sweden, Denmark, the Netherlands and Korea experienced a similar large decline in MFP growth as the United States. By contrast, MFP grew rapidly in Spain, Ireland and Portugal.
In line with MFP growth developments, the contributions of MFP to labour productivity growth in many countries was small or even negative in 2022 (Figure 1.5). Higher real interest rates and energy prices, and declining confidence are reflected in a negative contribution of capital stock to output ratio in OECD countries for the second consecutive year. On the other hand, capital quality, i.e. changing composition of capital stock, made a relatively small but positive contribution to labour productivity growth in most countries in 2022.
Labour productivity growth can be broken down into within-industry productivity developments and between-industry reallocation of hours worked between industries with different productivity levels or different productivity growth rates. In 2022, changes in within-industry productivity growth were the main contributor to the slowdown in productivity growth. They can stem from various factors and may themselves be a result of reallocation at a more disaggregate, i.e., firm level. The contribution of the reallocation of hours worked between industries decreased relative to the pandemic period and to the within-industry effect, and in many countries it even turned negative. Those developments confirm the temporary nature of the unprecedented between-industry reallocation effects during the COVID recession. They boosted productivity growth that year, as hours worked were reduced in contact-intensive and lower-productivity industries, like hospitality, personal services or transport. These developments have been gradually reversed post pandemic.
Investment is traditionally a key driver of productivity. In around half of OECD countries, investment grew faster than GDP in 2022, implying increasing investment rates (investment over GDP, in current prices) in these countries. Most of the OECD countries have already caught up with or even exceeded their pre-pandemic (2015-2019) investment rates, with the most notable exceptions being Ireland, Norway, Colombia and Poland. When looking at more disaggregated developments, Dwellings and Other buildings and structures were the most fast-growing asset category in many countries, while the investment rate of Intellectual property products (IPP) declined in most countries (see Chapter 7 on the evolution and composition of investment).
In most OECD countries labour productivity and (real average hourly) labour income in the business economy evolved in the same direction in 2022. However, due to different paces of these indicators, this still meant widening of the gap between them in some countries (e.g., Czechia, Hungary or the Netherlands), and narrowing in others (e.g., France Slovenia). By contrast, in Italy, Portugal and Spain labour productivity was stable or increased while real average labour income fell in 2022 (see Chapter 8 on changes in labour income and productivity growth for further insights).
Firm-level productivity depends on various factors, including the size of the enterprise and its sector of activity. Large firms had on average higher labour productivity as compared to smaller firms in OECD countries, but the picture is mixed when looking at specific industries. In manufacturing, the productivity gap between large and smaller firms was on average more pronounced than in the business economy as a whole, reflecting returns to scale from capital-intensive production (see Chapter 6 on productivity in SMEs and large firms).
Future developments in productivity have become increasingly uncertain, as several shocks, including the COVID shock and heightened geopolitical tensions, have hit economies, with potentially long-term scarring effects stemming from some of them (OECD/APO, 2022[7]). This has come on top of long-term trends such as ageing populations, declining competition and stalling globalisation, which can also hamper productivity developments. At the same time, digitalisation, Artificial Intelligence and the transition to a green economy offer opportunities to revive productivity growth (OECD, 2023[8]).
Overall, experimental estimates point to labour productivity growth of about 1.4% in 2023 on average across OECD countries (excluding Türkiye), close to the long-term average (over 2001-2019). These estimates are surrounded by large uncertainties. Labour productivity growth is estimated to have been modest in most OECD European and Asian countries in 2023 (1.5% in Europe and 1.8% in Asia on average across countries). A sizeable increase in productivity growth to 1.5% from -1.6% in 2022 is estimated in the United States. Volatility in labour productivity during the COVID period blurs signals in Canada (see Chapter 2 on Insights on Productivity Developments in 2023).
Looking forward, geo-political tensions in the Middle East, is a key near-term concern, particularly if these tensions were to spread. This could lead to significant disruptions in energy markets and key trade routes, as well as additional risk repricing in financial markets, which would slow growth and investment and in turn productivity. Headwinds from rising trade restrictions, inward-looking policies and the restructuring of global value chains also contribute to the uncertain outlook for global trade, which is a key concern given the importance of trade for productivity. (OECD, 2024[9])
OECD National Accounts Statistics (database), https://doi.org/10.1787/na-data-en.
OECD Labour Market Statistics (database), https://doi.org/10.1787/data-00046-en.
OECD Productivity Statistics (database), https://doi.org/10.1787/pdtvy-data-en.
References and further reading
[5] Causa, O. et al. (2022), “The post-COVID-19 rise in labour shortages”, OECD Economics Department Working Papers, No. 1721, OECD Publishing, Paris, https://doi.org/10.1787/e60c2d1c-en.
[6] European Commission (2023), “Employment and Social Developments in Europe – Addressing Labour Shortages and Skills Gaps in the EU”, Employment and Social Developments in Europe 2023, Annual Review.
[1] Jaax, A., S. Miroudot and E. van Lieshout (2023), “Deglobalisation? The reorganisation of global value chains in a changing world”, OECD Trade Policy Papers, No. 272, OECD Publishing, Paris, https://doi.org/10.1787/b15b74fe-en.
[2] Mourougane, A. et al. (2023), “Nowcasting trade in value added indicators”, OECD Statistics Working Papers, No. 2023/03, OECD Publishing, Paris, https://doi.org/10.1787/00f8aff7-en.
[9] OECD (2024), OECD Economic Outlook, Interim Report February 2024: Strengthening the Foundations for Growth, OECD Publishing, Paris, https://doi.org/10.1787/0fd73462-en.
[8] OECD (2023), Job Creation and Local Economic Development 2023: Bridging the Great Green Divide, OECD Publishing, Paris, https://doi.org/10.1787/21db61c1-en.
[4] OECD (2023), OECD Economic Outlook, Volume 2023 Issue 1, OECD Publishing, Paris, https://doi.org/10.1787/ce188438-en.
[7] OECD/APO (2022), Identifying the Main Drivers of Productivity Growth: A Literature Review, OECD Publishing, Paris, https://doi.org/10.1787/00435b80-en.
[3] UNCTAD (2023), “World Investment Report 2023 - Investing in Sustainable Energy for All”, United Nations, Geneva, https://unctad.org/publication/world-investment-report-2023.