Wednesday, 8 June 2011

A look at sectoral productivity

For the umpteenth time I’d like to talk about labour productivity. I charted the trajectory of an alternate labour productivity measure, Gross Value Added per person employed in constant prices. One drawback of this particularly measure that springs to mind immediately is the fact that using total employed persons instead of hours worked treats full-time and part-time workers the same.  This could potentially lead to miscalculation of labor productivity, but it’s the only measure that I found in real terms. I think that it’s pretty interesting to see how labour productivity of different sectors fared in real terms.

Once more I used data about the three bailed out countries Portugal, Ireland and Greece. 

source: AMECO

As far as primary production is concerned there was a significant rise in real labour productivity during the last 15 years on aggregate but this was by no means a straight line growth. Any growth during the years charted up until 2008 was driven by the decrease of persons employed. The significant increase though, during the past three years, can be attributed to the spectacular rise in output mostly. What could potentially make the figures fishy is whether there was a lot of informal labour employed in the sector. This could mean that the rise in productivity could stem from a switch from formal to informal labour, which would just cancel any such increase. I doubt that the post-2008 increase could be attributed to that though since there was a slight increase in primary sector employment. But again I could be totally wrong here.

source: AMECO

Labour productivity in real terms for the construction sector went nowhere during the last 15 years. Here the differential between Ireland and the EU15 average and Greece is much smaller.

If we take a look at the relevant figures for manufacturing, I think that one could blink in disgust. The EU average is essentially double (or even more towards the end of the decade) the level of Greece, while the figures for Ireland are simply exorbitant. We have talked in the past about the capital intensity for the Irish economy and how much higher it is or about the high levels of inward FDI, both of which tend to work towards rising labor productivity, but the number for Ireland is out of this world. It is true that Gross Value Added of several Irish industrial products is pretty high due to their high technological content, but the number is shocking nonetheless.

source: AMECO

Finally, for the services sector where most Greeks are employed (at least for now), productivity differentials are lower again. 

source: AMECO

The key takeaway is pretty clear; Greece suffers from a severe productivity hysteresis. The said differentials are abysmal for sectors with a high technology content (manufacturing) and are a bit lower for sectors with a lower technological content (services, construction).

An alternate reading could be that the tradable sector suffers from low productivity, hence low competitiveness, while differentials are lower within the non-tradable sector.

Given that the domestic market will probably shrink dramatically during the next few years, if we want to stand any chance to (re)improve Greece’s living standard, in solid foundations this time, the tradable sector needs, among other things, a productivity boost. A high level of inward FDI, legislative change and a better business environment in general could help, but these are easier said than done. I could think of several other things that could also help, but I can’t see any moves towards them materializing presently…

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