Special relationship

Improving productivity is a goal in any business or economy, but a real difference in performance comes from the increase in productivity that comes from combining labour and capital.

This relationship came into focus during the new economy boom as economists tried to explain how new technology and human capital worked together to lift growth potential to higher levels.

All OECD countries eased anti-competition regulation during the 1980s and 1990s, but those who went further than others, like the US, Australia and Finland, also benefited from an acceleration in so-called multifactor productivity (MFP, also called total factor productivity) during the 1990s. The contribution of new firms to productivity growth played a role, and this was stronger in skill-intensive industries undergoing rapid change in technology, whether those producing or using information technology.

As the latest OECD Economic Outlook explains, traditional policies, like lowering entry barriers to product markets and improving the regulatory framework can enhance competition and raise MFP too. In particular, levels of product market competition, research and development, and labour market regulation and institutions can have an important influence. In some euro area countries, for instance, the removal of commercial and administrative barriers might increase MFP growth in manufacturing by 0.1 to 0.2 percentage points over time.

©OECD Observer No 239, September 2003

Economic data

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Consumer price inflation: 1.3% Sep 2020 annual
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Unemployment: 7.3% Sep 2020
Last update: 10 Nov 2020

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