The tricky economic outlook in developed markets is the result of a shock on economic activity due to a sharp slowdown in world trade, combined with insufficient productivity growth to trigger a swift recovery in economic activity. The risk of a long-lasting shock hampering both activity and the labor market is particularly high, as economic policy has little leeway to cushion these shocks and spread the cost out over time.
The decline in productivity gains is a real source of concern, especially for developed economies. In short, productivity is the surplus created by the production process, so when we talk about the production process, one plus one makes a little bit more than two: this “little bit more” equates to productivity gains. Depending on the time period and the efficiency of the production set-up, this “little bit more” can vary in size. In the past, productivity gains were vast, with growth of 5.8% per year in France on average in the 1960s, and this led to a downtrend in working time, an increase in wages and the implementation of an effective social security system (productivity gains = increase in production per hour worked in volume terms). The higher this surplus, the greater the production system’s leeway to redistribute these gains to all citizens.
Due to the very nature of the process, these gains drive self-sustaining momentum that helps cushion shocks and swiftly sets an economy back on the track to growth and jobs. The higher the gains, the more readily the economy can recover quickly and on a broad scale.
The current period since the crisis in 2008 has been characterized by a clear slowdown in production per hour worked across all developed countries. This is shown in the table below, which outlines average annual productivity growth across three time periods: an extended period between 1990 and 2007, the period since the US recovery in 2009 and the phase since the recovery in Europe in 2013.