Some Issues about Productivity Growth

Mārtiņš Kazāks Swedbank Chief Economist in Latvia

June 2, 2017

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© Swedbank

Public

Information class 2

Convergence story: so far remarkable improvement in incomes and

productivity, but it will, of course, get tougher going forward

0

25

50

75

100

125

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015

GDP per capita (PPS), % of EU28

Italy Greece Portugal Czech Republic Hungary

Estonia Latvia Lithuania Poland Bulgaria

Source: Eurostat

© Swedbank

Public

Information class

Convergence story: so far remarkable improvement in incomes and

productivity, but it will, of course, get tougher going forward

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-20 0 20 40 60 80 100 120 140

IT

EL

CY

PT

DK

FR

ES

NL

FI

BE

AT

EU 28

UK

LU

DE

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SI

HR

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CZ

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EE

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BG

RO

LV

LT

GDP per capita growth 2000 to 2016, %

Source: Eurostat

-20 0 20 40 60 80 100 120 140

BE

IT

FR

CY

EL

HU

EU 28

DE

ES

LU

AT

PT

UK

HR

SE

NL

DK

FI

MT

BG

SI

CZ

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PL

EE

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LV

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GDP per FTE growth 2000 to 2016, %

Source: Eurostat

© Swedbank

Public

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Convergence story: so far remarkable improvement in incomes and

productivity, but it will, of course, get tougher going forward

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-20

-15

-10

-5

0

5

10

15

20

2000 2002 2004 2006 2008 2010 2012 2014 2016

Real GDP growth, %

Real GDP

Real GDP per capita

Real GDP per FTE

Source: Eurostat

-20

-15

-10

-5

0

5

10

15

20

2000 2002 2004 2006 2008 2010 2012 2014 2016

Real GDP growth, %

TFP growth

FTE growth

Real GDP per FTE growth

Source: Eurostat

2000-16 average

TFP at 5.6%

2011-16 average

TFP at 1.7%

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Selected issues: “low end” of productivity scale?

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Labour market There is still some slack in the labour market: what about skills and the way

companies organize their employment?

Labour market indicators, annual growth, %

EE: +45 000

7% of 2016

employment

LV: +85 000

10% of 2016

employment

LT: +140 000

10% of 2016

employment

If participation

raised to the

Swedish level

0 20 40 60 80

Unemployed afterparental leave

Youth (15-24)

Unemployed withdisability

Long term unemployed(12 months or more)

Unemployed aged 50and over

Total

Registered unemployed in Latvia, thousands

Source: State Employment Agency

Of which:

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Selected issues: “low end” of productivity scale?

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Labour market Largest source of increased labour supply among the youngsters and elderly, but

the jobs need to be more flexible; work longer in life

Labour market indicators, annual growth, % Total part-timers in

2016, % of employed

SE: 25.6%

LV: 9.3%

Part-timers in 15-24

group in 2016, % of

employed

SE: 49.1%

LV: 14.8%

Part-timers in 55-64

group in 2016, % of

employed

SE: 23.9%

LV: 11.3%

0 20 40 60 80 100

15-24

25-34

35-44

45-54

55-64

65-74

Total participation rate in LV and SE, %

Sweden in 2016 Latvia in 2016 Latvia in 2002

Source: Eurostat

+30 000

people

+30 000

people

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Selected issues: productivity of those elderly?

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2000

2016

Latvia

2.382 m

1.969 m

-17%

Estonia

1.401 m

1.316 m

-6%

Lithuania

3.512 m

2.889 m

-18%

<14: -30%

15-24: -41%

25-34: -14%

35-44: -25%

45-54: -7%

55-64: -8%

65-74: -12%

>75: +48%

Labour market Average employed will continue to become older, and s/he will need to work longer

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Selected issues: technological innovations and/vs. jobs?

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Technologies Ample opportunities for productivity growth, but also job destruction: skills, education

system, employee motivation?

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Selected issues: technological innovations and/vs. jobs?

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Technologies New job creation: what are the skills, education system (STEM and social capital),

and employee motivation?

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12

18

0

90

180

270

LU IE NL

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BE FI

UK

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EU

28 IT ES

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CZ SI

CY

SK

PT

EE

LT

PL

HU

EL

LV

HR

RO

BG

Productivity and employment in health and social work

GDP per capita (PPS adjusted), % of EU 28Employed in health and social work, % of total, rs Source: Eurostat

Where are the new jobs likely to be created?

• On average countries with lower productivity work

longer hours

• Some of the gains from new technology are taken

as increased leisure time, e.g., more healthcare,

education, hospitality, household services, etc.

• Job sharing used to cut working hours

30

35

40

45

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90

180

270

LU IE NL

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BE FI

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EU

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CZ SI

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Productivity and hours of work

GDP per capita (PPS adjusted), % of EU 28

Average weekly hours of work, rs

Source: Eurostat

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Selected issues: technological innovations and/vs. jobs?

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Technologies Is the education system and people themselves ready for it?

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LU IE NL

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CZ SI

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PT

EE

LT

PL

HU

EL

LV

HR

RO

BG

Productivity and employment in health and social work

GDP per capita (PPS adjusted), % of EU 28Employed in health and social work, % of total, rs Source: Eurostat

Where are jobs likely to be created?

• On average countries with lower productivity work

longer hours

• Some of the gains from new technology are taken

as increased leisure time, e.g., healthcare,

education, hospitality, household services, etc.

• Job sharing used to cut working hours

30

35

40

45

0

90

180

270

LU IE NL

AT

DK

DE

SE

BE FI

UK

FR

EU

28 IT ES

MT

CZ SI

CY

SK

PT

EE

LT

PL

HU

EL

LV

HR

RO

BG

Productivity and hours of work

GDP per capita (PPS adjusted), % of EU 28

Average weekly hours of work, rs

Source: Eurostat, OECD

Source: www.delfi.lv; Author: Gatis Šļūka

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Selected issues: technological innovations and/vs. jobs?

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Technologies Are we ready? What do people say?

63% Technologies will

kill jobs

4% Their own jobs

under risk over the

next few years

33% Do nothing and

plan to do nothing

Source: SKDS survey commissioned by Swedbank, April 2017

21% Now study to

improve their skills

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Selected issues: shadow economy?

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Investments Living in shadows means no access to or expensive borrowing cost; it also means

hampered flow of resources to the most productive firms and overall slower recovery

101 163 119,856

Have not submited financial reports

Have submited financial reports

Total number of active

companies: 221 019

Companies having

submitted their

financial reports,

split by turnover

54%; 56 328

23%; 23 462

20%; 20 792

3%; 3 277

EUR 12k - 2m EUR 0

< kEUR 12 Above mEUR 2

28,271

28,057

Positive equity or EBITDA

Negative equity or EBITDA

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Selected issues: corporate management quality?

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Management Management as a Technology: management practices account for about 30% of

TFP differences across countries (Bloom et al, 2016)

Source: www.delfi.lv; Author: Gatis Šļūka

Thank you!

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