The Strategist

Study: OECD countries beat unemployment with low productivity and underpaid jobs

05/06/2019 - 12:48

The average level of employment in OECD countries exceeded 70%, which is a historical maximum, especially given stabilization of the number of working hours per employee. Employment growth provided a large share of GDP growth in this region after the 2008 economic crisis. New jobs, however, were created in sectors with low labor productivity, which led to a slowdown in its growth by half against the pre-crisis rates.

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Although employment in the OECD countries reached a historic maximum, in many respects it grew at the expense of unproductive and low-paid jobs, which negatively affected labor productivity indicators. Such conclusions are contained in the report of OECD analysts "Collection of performance indicators." Before the economic crisis of 2008, the employment rate for OECD countries averaged 68%, and in 2010 it was 67% of the economically active population, by the end of 2018 it reached a level of 72%. Iceland (86%), Switzerland (80%) and Sweden (78%) lead on this indicator, while South Africa (less than 45%), Turkey (52%) and Greece (55%) are outsiders. 

Since 2010, the report’s authors explain, the expansion of employment has become a leading contributor to the growth of most OECD countries. It provided 100% growth in GDP in Italy, New Zealand and Portugal in 2014–2018, 70–80% growth in GDP in Spain and the Netherlands. The minimal (zero) effect of employment expansion was noted in South Korea, Austria, Norway, Canada, the Czech Republic and in Russia. Its impact on GDP growth was also strengthened by the constant number of hours worked by each worker. The trend has been observed since the beginning of the century. By 2017, the time worked has decreased to 96% of the numbers of the 2000 year, but in recent years the indicator has stabilized, and even began to grow in the United States and England, according to preliminary data. Now the longest working hours are Greece (1900 hours per year), Poland (1850 hours) and Estonia (1830 hours). Workers in Germany (1400 hours), Denmark (1430 hours) and Norway (1450 hours) work the least amount of time.

However, the majority of new jobs that provided employment growth in the post-crisis period were created in sectors with low productivity. This lowered the average rate of productivity growth in the OECD to 0.9% per year, which is half the pre-crisis value. It turned out to be negative in a number of countries (Greece, Mexico, South Africa and the Russian Federation). Slowdown in productivity growth occurred in all sectors, but was maximum in the production sector: in France - from 3% to 2% per year, in England - from 4% to 0.5%, in the USA - from 4.3% to minus 0 , 3%. Since most of the new jobs were low paid, the growth (adjusted for inflation) of average earnings slowed down: it remained below the pre-crisis level in two thirds of OECD countries, including France (0.5% compared to 1.5%), England (1% against 3%) and Italy (minus 0.2 against 1%).

The report’s authors explain the slowdown in productivity growth by slowing investment in the means of production - equipment and tools. According to analysts, expenses for the intellectual component of the business, for example, for industrial research, also fell, albeit at a different pace. With employment growth, this may indicate a greater comparative benefit for enterprises from spending on new employees (with lower wages than before the crisis) than from investing in new technologies - despite the common belief about the ongoing “new industrial revolution”.