Source: Wall Street Journal
Productivity May Slow in 2011
By CHRISTOPHER EMSDEN
Global economic productivity rallied strongly last year thanks to a notable economic recovery, but it is likely to flag in 2011 in advanced economies as employment catches up, the Conference Board said late Sunday.
Euro-zone labor productivity may even outpace the U.S.'s this year, although that is likely to prove a temporary blip, Bart van Ark, the U.S.-based think tank's chief economist, said in an interview.
Job losses in the U.S. have been more severe and an employment recovery will drag productivity growth down a bit, while European labor programs mean fewer jobs were lost but there is also "less scope" to allocate resources to more productive sectors, he said.
Labor productivity growth in the U.S. jumped about 2.8% last year but should slow to around 1.1% in 2011, according to the Conference Board's estimates. Euro-zone labor productivity should slow to 1.3% this year from 1.7% last year.
The think tank expects U.S. gross domestic product to expand 2.5% this year and 2.9% in 2010, compared with 1.6% and 1.7%, respectively, for the euro area.
The number of hours worked didn't grow in the U.S. last year but should grow 1% in 2011, while increasing only 0.4% in the euro area after a 0.1% increase last year, according to the Conference Board's estimates.
Productivity and employment growth can be an either/or outcome in the wake of a severe recession, Mr. van Ark said.
Even if productivity growth is usually seen as disinflationary—a concern for policy makers worried about deflation—"it could be welcome as an offset to the risk of commodity price inflation," he said.
At any rate, "the underlying productivity growth trend in the United States remains stronger than it is in Europe," he said.
However, the Conference Board expects labor productivity in Germany, the world's No. 1 exporter and hence a benchmark nation for competitiveness, to grow by 1.9% in 2011. Italy, Spain, Portugal and Greece are expected to perform below the euro-zone average.
"Southern Europe is squeezed in and it's hard to fight costs and innovate simultaneously," Mr. van Ark said.
Labor productivity should continue to grow strongly in major emerging economies, accelerating to 5.8% in India this year while slowing only modestly in China to 8.4% from 8.7% in 2010, the Conference Board estimates.
But China may be near the point where it experiences the gradual decline in productivity growth rates that has been playing out in advanced economies, Mr. van Ark said. Otherwise, he noted, China would have to post a "continuous acceleration" of GDP growth, which is unlikely given the double-digit average pace of the past five years.
"Productivity growth in China will have to be generated within firms," he said, noting that much of past labor productivity growth has reflected the exit of unproductive companies and their replacement by more dynamic ones.
A shift in China's focus to domestic markets would also likely mean more labor is used in the services sector, where labor productivity is typically harder to obtain than in export-based manufacturing, Mr. van Ark said.
World labor productivity growth—measured in terms of output per worker—has increased well beyond 2% annually every year since 2000, thanks largely to big emerging economies.
But the global crisis of 2008 and 2009 has "slightly flattened" that trend, raising questions about future longer-term trends, the Conference Board said.
Innovation ultimately boosts economic welfare but entails what Joseph Schumpeter called "creative destruction," including of jobs. TFP, or total factor productivity, is a key long-term metric, capturing technological and managerial efficiencies that the Conference Board believes have accounted for about a quarter of total global output growth in recent years.
The Conference Board doesn't forecast future TFP, but said TFP fell in the U.S. by 0.2% in 2009 and 0.7% in 2008. Comparative declines for Western Europe were 3.4% and 1.3%, respectively.
