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New ILO study highlights labour trends worldwide: US productivity up, Europe improves ability to create jobs

US productivity accelerated in 2002, surpassing Europe and Japan in terms of annual output per worker for the first substantial period since WWII and widening the productivity gap with the rest of the world, according to a new study by the International Labour Office (ILO) published on US Labor Day.

Press release | 01 September 2003

GENEVA (ILO News) - US productivity accelerated in 2002, surpassing Europe and Japan in terms of annual output per worker for the first substantial period since WWII and widening the productivity gap with the rest of the world, according to a new study by the International Labour Office (ILO) published on US Labor Day.

In Key Indicators of the Labour Market (KILM) ( see note 1), the ILO noted that part of the difference in output per worker was due to the fact that Americans worked longer hours than their European counterparts. US workers put in an average of 1,825 hours in 2002 compared to major European economies, where hours worked ranged from around 1,300 to 1,800. In Japan, hours worked dropped to about the same level as in the US, the ILO said.

In other key findings, the KILM shows that:

  • Growth in productivity per person employed in the world as a whole accelerated, from 1.5 per cent during the first half of the 1990s, to 1.9 per cent in the second half. Most of this growth was concentrated in industrialized economies (the US and some EU countries), plus some in Asia (China, India, Pakistan and Thailand). In Africa and Latin American economies, available data showed declines in total economy productivity growth since 1980.
  • European and other industrialized countries - while achieving slightly lower productivity growth rates on average than the US - had improved their "employment-to-population ratios" which measures the proportion of people in the population who are working ( see note 2). While unemployment rates in the EU as a whole remained above those in the US, many European countries were able to maintain or improve their ability to create jobs, while achieving moderate growth in productivity. The EU increased the employment-to-population ratio from 56.1 to 56.7 per cent between 1999 and 2002 while reducing unemployment, the KILM says.
  • Although the employment-to-population ratio in the US declined by 1.6 - from 64.3 to 62.7 per cent in the same period, overall it remained consistently higher than the EU. Over the longer term, the US economy has had higher employment and productivity growth rates than the EU. Thus, the report shows that positive development in job creation and productivity are possible over the longer term.
The 3rd edition of the biennial KILM examines 20 key indicators of the labour market, including employment, unemployment, underemployment, hours worked, labour productivity, types of economic activity and how youth and women are faring in the labour markets. For the first time, the KILM also examines agricultural productivity and notes that this sector remains the primary employer in many developing economies. The new analysis suggests that a rise in productivity and employment may be the only way to reduce poverty.

"The overall global trends show that growth is not enough," said ILO Director-General Juan Somavia. "We must make productivity growth and job creation key objectives and pursue policies that combine these objectives with decent work."

Global productivity

The KILM is the only report published by an international agency that includes estimates on total economy labour productivity. ( see note 3)

The KILM showed US output per person employed growing 2.8 per cent in 2002 from 2001 levels ( see note 4), for an average growth rate over the past seven years of 2.2 per cent. This was double the growth rate of 1.2 per cent in the European Union and 1.1 per cent in Japan during the same period. The report says output per person employed in the US reached a level of USD60,728 in 2002, up from USD59,081 in 2001. In major EU countries last year, average labour productivity growth in per person terms was 1.1 per cent, yielding an output per person employed of USD43,034. Belgium led the way at USD54,338, with France and Ireland topping USD 52,000 and Germany at USD 42,463 .

Greece had higher labour productivity growth than the US in 2002 at 4.1 per cent. At the same time, Ireland closed the productivity gap with the US, France and Belgium by increasing its productivity levels to USD52,486, reflecting an increase of 2.2 per cent from 2001 levels.

The figures for output per hour worked show Norway, France and Belgium ahead of the US since the mid 1990s. In 2002 Norway had an output per hour worked of about USD38, followed by France at USD35, Belgium at USD34 and the US at 32 (figures are rounded off to the nearest dollar), thus showing that part of the gap between the US and Europe in output per person employed is due to differences in hours worked.

Besides the difference in hours worked the KILM attributed much of the growth in output per person employed in the US to two other factors: the production and diffusion of information and communication technology (ICT) in an enabling economic environment, and the growth of service industries such as wholesale and retail trade and financial securities that depend on ICT. With the exception of Finland and Ireland, most EU countries were unable to match the US in such developments in 1990s.

In the agricultural sector, the KILM shows that employment in the sector has rapidly declined in developed economies, but not in the rest of the world. The agriculture sector remains a cornerstone for a large number of developing countries in terms of employment and poverty alleviation strategies. Productivity in agriculture shows continued growth in all economies. However, productivity levels in agriculture, published for the first time in KILM, remain higher in developed economies. In the US, for example, an agricultural worker produces over 650 times more than an agricultural worker in Vietnam.

Given the relatively large size of the agricultural sector in developing economies, the sector remains a potential contributor to faster productivity growth. With the employment share of the agricultural sector gradually declining, shifting labour to other sectors should improve both employment and productivity growth over the longer term. Access to domestic and international markets in agricultural goods and the development and implementation of environmentally sustainable technologies are important vehicles to raise productivity growth in agriculture.

Hours worked

The slowdown in Gross Domestic Product (GDP) growth that began three years ago - and was influenced by the Sept. 11, 2001 terrorist attacks - was reflected in a parallel decrease in annual hours worked per person in most countries worldwide, the KILM shows based on available information. Although productivity increased, hours worked in the US declined each year since 2000, dropping from 1,834 in 2000 to 1,825 in 2002. More significant declines were reported during the same period in Norway (from 1,380 to 1,342), Sweden (from 1,625 to 1,581), France (from 1,587 to 1,545), Australia (from 1,855 to 1,824), Canada (from 1,807 to 1,778), Ireland (from 1,690 to 1,668) and Germany (from 1,463 to 1,444). Japan, where people once worked much longer, is now at about the same level as in the US, the KILM says.

Over the longer term hours worked in Australia, Canada, New Zealand and the US have been more or less stable since the 1980s, whereas in the rest of the industrialized world hours worked have steadily declined (apart from some cyclical fluctuations) in the last two decades.

Worldwide, a number of countries reported much higher hours worked than in the US. The report noted that in South Korea, for example, people worked 2,447 hours in 2001, the longest hours worked of all economies for which data were available - 26 per cent more than people in the US and 46 per cent more than in the Netherlands, which had the lowest hours worked of all economies for which data were available. "In all developing Asian economies where data were available, people historically worked more than in industrialized economies. This is a typical sign for developing economies as they often compensate for the lack of technology and capital with people working longer hours," the report said.

In some transition economies, hours worked reflected both the ongoing shift from agriculture to manufacturing and services, as well as away from centralized economies. Workers in the Czech Republic, for example, put in 1,980 hours in 2002 - despite a heavy decrease in recent years - and thereby worked the longest hours within OECD economies along with Slovakia (1,978 hours) and Greece (1,934).

Ireland provides a good example of the changing pattern in working hours that occurs when an economy moves through the development process, the report said. Along with the sectoral shift from an agricultural based economy to manufacturing and services, hours worked by people in Ireland fell from just above 1,900 annually in the 1980s to 1,668 hours in 2002, a drop of nearly six 40-hour workweeks per employed person and more than doubling productivity per person employed between 1980 and 2002.

Creating and maintaining jobs

Most industrialized economies (with the exception of Germany and Japan) increased output and nominal employment during the period 1999-2002. Additionally, European economies such as France, United Kingdom, Belgium and Ireland increased their employment-to-population ratios while reducing unemployment rates during this period.

Although unemployment rates in Europe have generally been higher than those in the US, since the early 90s the unemployment rate in a number of countries within the EU have decreased, the report said. EU countries such as Ireland have reduced unemployment rates from among the highest in Europe in the early 1990s to below the US in 2002. Additionally, Luxembourg, Switzerland, Netherlands, Iceland, Norway, Denmark, Portugal, UK, and Sweden all have unemployment rates lower than the US, for different reasons. Other labour market indicators in the report support the conclusion that the US labour market reacted differently to those in Europe during the latest economic downturn, perhaps due in part to the different degrees of labour market flexibility and national attitudes toward policy intervention, the report says.

For example, in addition to diverging unemployment and employment rates, the US shows different results from the majority of European economies when it comes to finding jobs for youth and persons unemployed for a long period of time (one year or longer) during this economic downturn. The US has recorded increases in both the youth unemployment rate and the long-term unemployment rate since 1999, whereas the rates of both indicators declined in a large number of other industrialized economies.

Employment-to-population ratios in Latin America showed mixed results over the past decade. Declines between 1990 and 2002 were evident in Argentina (falling to 37.1 per cent), Chile (dropping to 35.3 per cent), Colombia (falling to 51.6 per cent) and Uruguay (falling to 47.6 per cent). However, Peru and Venezuela experienced growth in their employment-to-population ratios, 62.5 and 58.9 per cent, respectively.

In Asia, the employment-to-population ratio declined by 2.8 per cent from 60.7 in 1995 to 58.6 in 2001 in South Korea, while in the same period Hong Kong, China's ratio dropped by 2.8 per cent from 60 to 58.3. Malaysia and Thailand all recorded declines in the employment-to-population ratio for 1995-2000. Malaysia's ratio declined by 2.7 per cent, from 65.3 to 63.5. Thailand had one of the highest declines in the region, falling by 12.6 per cent, from 77.5 to 67.7. Even with the declines, the Asian economies typically record high employment-to-population ratios; with the exception of Sri Lanka, all of Asia's major economies recorded employment-to-population ratios of between 50 to 70 per cent.

The KILM also highlights the wide disparities in employment in agriculture, illustrating the importance of world trade negotiations to poverty reduction in developing countries. Among the 20 richest economies in the world, the KILM said agricultural employment was quite low, ranging between 1.4 per cent in the UK and 7 per cent in Ireland. In transition economies, however, the range was between 4.8 per cent (Czech Republic) and 52.7 per cent (Georgia). In many Asian and African countries it is higher than 70 per cent, while in Latin America it is as high as 43.6 per cent (Nicaragua) and 50.6 per cent (Haiti). In Middle East and Northern Africa it is rather low in the oil producing economies, but as high as 75 per cent in the non-oil producing economies.

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Note 2

Note 3

Note 4 - The US Department of Labor, Bureau of Labor Statistics (BLS) data released in August 2003 indicated a continuing growth trend in 2003.