The Strategist

PwC named leaders of labor productivity growth

06/22/2016 - 17:24

Labor productivity growth in Ireland and Spain is higher than that in Germany, France and the Netherlands, according to PwC. Economies of these peripheral euro zone countries are growing at the fastest pace in the region.

PwC recorded the highest rate of labor productivity growth in Ireland. The rise is about 7% over a three-year period until 2015. On average, labor productivity in the euro area grew by about 2%.

Labor productivity in countries with major economies such as the Netherlands, France and Germany, has grown in line with the euro area’s average.

Peripheral countries like Portugal and Greece have failed to significantly improve productivity, despite reforms undertaken by them in this period, PwC's experts say.

At the same time, the picture in individual sectors looks. In some euro area countries, labor productivity in the manufacturing sector grew quite rapidly.

"This trend is understandable. Most manufactured products (industrial products) are sold on the market in a competitive environment, which encourages companies to improve efficiency more quickly. In addition, new automated technologies, as a rule, are primarily intended for use in the manufacturing sector, although they can also be used in activities that are related to everyday services,"- said Richard Boxshall, senior economist at PwC.

About 75% of total number of Made in EU goods and hours spent for production are related to the services sector. Thus, the latter has the greatest impact on labor productivity throughout the economy. Labor productivity growth in the service sector lags behind that in the manufacturing sector (with the exception of Greece).

"In our opinion, this trend is obliged to two main reasons. Firstly, in contrast to the market for goods, the EU still has much to be done to complete creation of a single services market. Perhaps this is the reason why companies are slow to adjust to competition, compared to their supposed actions in a more free regime. As a result, the productivity is not growing rapidly,"- said Richard Boxshall.

According to him, there are some reasons peculiar to particular sectors, that also explain this trend. Specifically, the service sector often uses relatively labor-intensive process, so there are fewer opportunities to benefit from introduction of technological advances and mechanization.

"In addition, regulation in the financial services sector has increased after the crisis, which can be justified by need to ensure stability and reduce systemic risk to the overall economy. At the same time, it may have some negative impact on performance due to restrictions of activities of financial companies, or deter innovation activity", - said Boxshall.

According to PwC, the euro area economy grew at a faster pace than the US economy in I quarter of 2016. However, the recovery (largely, of labor market) is uneven. Thus, unemployment rate in the euro zone at this stage of the recovery is record high compared with previous crises. 

"In our opinion, these fluctuations of the economic indicators’ values are caused by structural factors and are associated with differences that exist in the markets of labor, capital and goods in each country within the euro area. However, economic recovery happening in the euro zone countries has enabled politicians to initiate reforms and smooth out some of the existing differences, "- said Boxshall.

source: PwC (Pricewaterhousecoopers)