International
US leads world in Labour Productivity: US companies put Ireland in second place in global rankings
By Finfacts Team
Sep 4, 2007, 03:43

The productivity gap (measured as value added per person employed) between the United States and most developed economies continued to widen, especially in more recent years. Exceptions were Ireland, which saw its gap decline steadily over time from almost 40 percentage points in 1980 to less than 13 points in 2006. Since 2000, Finland, Sweden and the United Kingdom were also able to continue reducing their productivity gaps as well as several new members of the European Union – Estonia, Latvia and Lithuania – although productivity gaps in the latter group remain considerable. Labour productivity declined from 1980 to 2005 in half of the countries in Latin America & the Pacific and increased only slightly in the remaining countries.

While productivity levels have increased worldwide over the past decade, gaps remain wide between the industrialized region and most others, although South Asia, East Asia, and Central & South-Eastern Europe (non-European Union) & CIS (Commonwealth of Independent States - ex-USSR) have begun to catch up, the International Labour Office (ILO) said in a new report published Monday.

The ILO (International Labour Organization) report, entitled Key Indicators of the Labour Market (KILM), fifth Edition (KILM) indicates that the U.S. still leads the world by far in labour productivity per person employed in 2006 despite a rapid increase of productivity in East Asia where workers now produce twice as much as they did 10 years ago.

What’s more, the report also shows that the productivity gap between the US and most other developed economies continued to widen. The acceleration of productivity growth in the US has outpaced that of many other developed economies: With US$ 63,885 of value added per person employed in 2006, the United States was followed at a considerable distance by Ireland (US$ 55,986), Luxembourg (US$ 55,641), Belgium (US$ 55,235) and France (US$ 54,609).

However, Americans work more hours per year than workers in most other developed economies. This is why, measured as value added per hour worked, Norway has the highest labour productivity level (US$ 37.99), followed by the United States (US$ 35.63) and France (US$ 35.08).

Among the Developed Countries, the ILO figures showed that long-term productivity improvements were often more marked in Western Europe and Japan than the US.

The average annual rate of productivity growth in the US was 1.7 per cent between 1980 and 2005, whether measured in terms of total hours worked or per hour.

The Modern Industry Sector, which is dominated by US multinationals, has been the overwhelming determinant of Irish productivity growth in recent decades while in sectors such as food, productivity has stagnated according to Irish State agency Forfás report Perspectives on Irish Productivity.

By comparison, the annual rise in Irish output per worker over the same period was 3.1 per cent when based on total hours per worker each year and 3.8 per cent if measured per hour.

During the reference period, large US companies established significant manufacturing facilities in Ireland and these US companies are responsible for most manufacturing in Ireland.

A report on productivity published by Irish State agency Forfás in March 2007, showed that in the period 1995-2005, productivity growth was static in sectors such as food where multinational firms are not dominant.

In the UK, the equivalent figures were 2.1 per cent and 2.4 per cent. For France, productivity rose 1.5 per cent per year based on total hours worked, and 2.2 per cent when calculated in terms of output per hour.

For Germany the rises were 1.4 per cent and 1.8 per cent respectively. For Italy 1.1 per cent and 1.4 per cent, and for Japan 1.8 per cent and 2.5 per cent.

Increase in productivity is mainly the result of firms better combining capital, labour and technology. A lack of investment in people (training and skills) as well as equipment and technology can lead to an underutilization of the labour potential in the world.

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Figure 17b. Annual per cent change in hourly compensation costs, 2000-2005

Ireland in joint fourth place.

“The huge gap in productivity and wealth is cause for great concern,” said ILO Director-General Juan Somavia. “Raising the productivity levels of workers on the lowest incomes in the poorest countries is the key to reducing the enormous decent work deficits in the world.”

In East Asia where productivity levels showed the fastest increase, doubling in ten years, output per worker was up from one-eighth in 1996 to one-fifth of the level found in the industrialized countries in 2006. Meanwhile, in South-East Asia & the Pacific productivity levels were seven times less and in South Asia eight times less than in the industrialized countries, the report reveals.

In the Middle East and Latin America & the Caribbean, the value added per person employed is nearly three times less than it is in the developed economies; in Central & South Eastern Europe (non-EU) & CIS the level is 3.5 times less, and four times less in North Africa. The widest gap is observed in sub-Saharan Africa where the productivity level per person employed is one-twelfth of that of a worker in the industrialized countries.

Substantial decent work deficits

This fifth edition of the KILM provides more insight and new measurements on what the ILO calls “decent work deficits” worldwide. Decent work is productive and delivers a fair income, security in the workplace and social protection for families as well as allowing people to express their concerns, organize and participate in the decisions that affect their lives.

“Hundreds of millions of women and men are working hard and long but without the conditions they need to lift themselves and their families out of poverty; they risk falling deeper into poverty. Releasing their underutilized capacities by raising their productive potential must be at the top of the international development agenda,” said Somavia.

According to the KILM, 1.5 billion people in the world – or one-third of the working-age population – are “potentially underutilized”. This new estimate of labour underutilization is comprised of the 195.7 million unemployed people in the world and nearly 1.3 billion working poor who live with their families on less than US$ 2 per day per family member. Whereas the unemployed want to work but lack the opportunity to do so, the working poor are working but do not earn enough to escape poverty.

Figure 17c. Proportion of hourly direct pay and non-wage costs to total compensation costs, 2005

Figure 17c illustrates how including components of compensation costs not normally included in wages can greatly influence the relative rankings of countries. For example, Ireland had higher hourly direct pay (US$19.86) than Australia, Canada, the United States and France (US$19.85, US$19.21, US$18.32 and US$16.93, respectively). However, when total hourly compensation costs are compared, Ireland has a lower rate (US$22.76) than Australia, France, Canada and the United States (US$24.91, US$24.63, US$23.82 and US$23.65, respectively) because employer contributions to social insurance programmes are much lower in Ireland than the four aforementioned countries and thus Ireland’s non-wage compensation costs are significantly less.

The report also estimates that half of all women and men employed are considered vulnerable to poverty. Viewed in a global perspective most of these women and men work in the informal economy and carry a higher risk of being unprotected, without social security and without a voice at work. Over 70 per cent of the workers in sub-Saharan Africa and South Asia are in such vulnerable employment.

The report also notes that besides the underutilized labour force a large number of people – about one-third of the working-age population worldwide – are not participating in labour markets at all. For the last 10 years this inactivity rate has remained much higher for women than for men, with only two out of ten men of working age inactive compared to five out of 10 women. This shows that a large female labour force potential remains untapped.

The KILM, through publishing 20 indicators, covers many facets of decent and productive work including: type and size of employment, the lack of work and the characteristics of jobseekers, education, wages, earnings and compensations costs, labour productivity and working poverty. Taken together the KILM indicators give a strong foundation from which to examine the relationships between poverty, decent work deficits and labour underutilization.