According to recent OECD statistics, the downward slide indicates several things. First, that the US has lost its lead in labour productivity, with a sharp decline in growth since 2004 putting it behind Europe by 2007. Second, that certain sectors at the heart of the crisis, such as the construction industry, were showing signs of exhaustion even at the height of the housing boom in 2005. Labour productivity growth had been decreasing since 2002; in the construction sector, it dived from -4% in 2005 to -10% in 2006 and -12% in 2007. In fact, productivity was already declining strongly just when the bubble was at its most inflated.
By comparison, productivity in the euro area also dropped after 2006, while labour productivity in construction, at near-zero levels in 2006, slid slightly by 0.5%, while overall EU productivity edged up by 1%.
The convergence among OECD countries, albeit based on downward trends, also affects innovation, as measured by multifactor productivity (MFP), which captures the way labour, technology and know-how interact. The drop reflects weaker innovation, which needs to be reversed for a sustainable recovery to take hold.
©OECD Observer No 273, June 2009