Despite Weakness in the Economy, U.S. Productivity Growth Will Accelerate This Year,...

Despite Weakness in the Economy, U.S. Productivity Growth Will Accelerate This
Year, Says The Conference Board

NEW YORK, Jan. 15 /PRNewswire/ -- Recession concerns and the credit crunch
cloud the U.S. economic outlook for 2008, but U.S. productivity growth will
accelerate to 1.7% this year, while Japan's rate will pick up to 1.9%,
according to the latest annual productivity report from The Conference Board,
the global business research organization.
With business cycles past their peaks, annual productivity growth in the
advanced economies has slowed to between 1% and 1.5%. Despite better European
performance in the past two years, the U.S. maintains its productivity edge
over the longer term.
Productivity growth rates in Europe, Japan, and the U.S. were low in 2007.
At 1.1%, U.S. labor productivity growth continued to underperform compared to
the longer-term, structural productivity trend of between 1.5% and 2.5%.
Growth rates for Europe and Japan came in at just 1.4%.
U.S. labor productivity growth was close to that of many European
countries, such as Germany (1%) and France (0.6%). Only five countries
(Austria, Finland, Greece, Ireland, and the U.K.) saw productivity growth
rates well in excess of the U.S. The U.K. recorded the fastest labor
productivity growth rate in the EU-15 at 2.9%, which is the result of very
strong GDP growth at 3.1%, but a meager improvement in working hours at only
0.2%.
The report warns that advanced economies will need to raise annual
productivity growth to well above 2% over the next two decades to maintain
current living standards. Given the limits to labor force growth almost
everywhere, the onus will be on technology and innovation to drive the growth
process.
Despite the slow increase in U.S. labor productivity, the level of GDP per
hour worked is still among the highest in the advanced economies. In 2007,
output per hour worked was U.S. $52.10-very close to the levels of France, the
Netherlands, and Austria, and only significantly behind two smaller economies:
Norway ($70.10) and Luxembourg ($70.30).
Challenge from Emerging Economies
Meanwhile, in emerging economies, productivity growth continued to
accelerate, topping 8% in the BRIC (Brazil, Russia, India, China) countries on
average in 2007, accelerating from 7.5% between 2000 and 2005. There were
large differences between the individual economies, however, with China
notching up 10.6% growth while Brazil managed just 1.9%. Employment growth was
slowest in Russia (0.6% from 2000-2007), followed by China (1%), but much
faster in Brazil (2.7%) and India (2.5%).
Bart van Ark, executive director of economic research at The Conference
Board, said: "Rapid adjustment to competitive pressures and greater innovation
in emerging economies have made fundamental and lasting changes in the global
competitive landscape. One of the most significant changes is the emphasis on
innovation-related spending in the emerging world. While expenditure on R&D
and investment in information and communication technology in emerging
economies are still at less than half of the level in advanced economies, the
spending gap is narrowing. This reflects a commitment to compete on the basis
of innovation capacity, not just cost."
Productivity levels in emerging economies are still very low at between
10% and 40% of the U.S. level. However, as the wage gaps are generally even
larger, the labor cost per unit of output provides a cost competitiveness
advantage to emerging economies which for manufacturing can be as low as 20%
of the U.S. level and 25% of the European level.
Europe Also Slowing
Europe suffered a slowdown in labor productivity growth last year as the
business cycle passed its peak and structural reform remained sluggish.
Output per hour worked rose by 1.4% across the 27 European Union states in
2007, down from 1.7% the previous year. It is expected to slow further, to
1.3%, in 2008 in the EU-27, and even to 1% in the "old" 15-member EU. For the
second year running, however, Europe performed better than the US.
The disappointing European average was the result of weak productivity
growth in a number of major economies, including Germany and France, but it
masked some impressive performances, most notably in the UK.
One reason for Europe's productivity growth slowdown is that most advanced
countries were at, or already well past, the peak of their business cycles.
This means that the employment growth rate accelerated faster than the output
growth rate. With growth now slowing, additional jobs may not help boost
productivity in the short run. Productivity growth in Europe also stayed well
below its long-term average trend as a result of persistent structural
inefficiencies.
"While some progress is being made on structural reforms, particularly in
labor markets and services industries, many of these reforms have come late
and are often patchy," says van Ark. "Furthermore, Europe seems to have
greater trouble in having innovation and knowledge creation turn into the
creation of more productive jobs, as GDP growth and employment -- at least in
the short run -- often offset each other."
About The Conference Board
Non-partisan and not-for-profit, The Conference Board is the world's
leading business membership and research organization. The Conference Board
produces the Consumer Confidence Index and the Leading Economic Indicators for
the U.S. and other major nations. These barometers can have a major impact on
the financial markets. The Conference Board also produces a wide range of
authoritative reports on corporate governance and ethics, human resources and
diversity, executive compensation, outsourcing, profiting from a mature
workforce, and corporate citizenship. Our conference and council programs
bring together more than 12,000 senior executives each year to share insights
and learn from each other. Visit The Conference Board website at
www.conference-board.org.
About the Author
Bart van Ark is Executive Director, Economic Research at The Conference
Board, and a recognized expert on international comparisons of productivity
and living standards. Dr van Ark is also Professor of Economics at the
University of Groningen (The Netherlands) and Director of the Groningen Growth
and Development Centre. His work focuses on international comparisons of
economic performance in Europe, North America and Asia.
About the Report
The Productivity Brief offers an up-to-date and timely overview of annual
data on key productivity, growth, and employment trends through 2007, and
projections for 2008, based on The Conference Board and the Groningen Growth
and Development Centre's Total Economy Database. The full report, containing
productivity figures for 100 countries, covering 98% of world output, will be
published at the end of January.
The basic statistical tables provide a comprehensive overview of
productivity, GDP, hours worked, and growth rates for 38 advanced economies in
the world, most of which are members of the Organization for Economic
Cooperation and Development. In this brief, we also provide estimates for
major emerging economies in Central and Eastern Europe, Brazil, Russia, India,
China, and Mexico. Underlying the tables is a publicly available database with
series on output, population, employment and hours worked. The data and
detailed source descriptions are available on an annual as well as country-by-
country basis from: http://www.conference-board.org/economics/database.cfm
The aggregate analysis is supported by The Conference Board analysis of
sectoral and industry trends which are published in cooperation with the
Groningen Growth and Development Centre.
http://www.ggdc.net/index-dseries.html
SOURCE The Conference Board

Frank Tortorici of The Conference Board, +1-212-339-0231 or
f.tortorici@conference-board.org