Poor productivity growth places future prosperity under pressure

Research and development are essential drivers of labour productivity. © Fotolia, Ehrenberg-Bilder

The increase in labour productivity (gross value added per hour worked) has been less than one percent since the turn of the millennium. Demographic developments and the decline in the labour force are exacerbating this trend. Falling real incomes threaten in the medium to long term. BDI proposes a wide-ranging agenda for strengthening productivity in Germany and Europe in a new Industrial Policy Dossier. A potential for increasing productivity exists in particular in innovation policy and structural reforms on goods, services and labour markets.

A standstill threatens through poor productivity growth

Public finances currently present a pleasant picture with a budget surplus. Demographic developments will place the public budget under massive pressure in the medium and long term. Germany’s population is set to decline from around 80 to 70 million by 2060. The share of the population of working age would shrink from 65 percent now to 50 percent. Demography-dependent spending by public authorities would increase from around 25 percent to more than 30 percent.

Low investments are leading to low productivity growth worldwide

Growth in labour productivity has fallen in all developed countries in recent decades. Both weak investment activity and deficits in innovation and structural policy are responsible for this. Those countries with high research and development rate are doing better on average. Manufacturing is producing higher productivity growth than the services sector. It can also be observed that a few firms on the technological front exhibit very high productivity growth. However, most companies in the midfield cannot keep up.

Economic policy can successfully help to correct the course

BDI presents a host of measures to increase productivity:

  • Increase investments, in particular in the digital sphere
  • Promote research, development and education
  • Make product and labour markets more flexible
  • Intensify international trade

Read the complete catalogue of recommendation and the analysis in the Industrial Policy Dossier.