U.S. Labor Productivity Growth in 2006 was the Lowest in More than a Decade

Press Release / News

Jan. 23, 2007

Printer-friendly version
Read this Report
Email a Colleague

U.S. and European productivity growth was relatively slow in 2006, according to The Conference Board's annual analysis of global productivity trends, raising concerns about the long-term effects of information and communication technology (ICT) as a continued impetus for productivity growth. U.S. labor productivity growth in 2006, at 1.4%, was the lowest in more than a decade and, despite a strong business cycle, the enlarged European Union saw modest productivity gains of only 1.5% last year.

According to Dr. Bart van Ark, Director of International Economic Research at The Conference Board: "Over the past decade, information and communication technology has been a key driver of global productivity growth, but with these latest numbers one begins to wonder whether ICT's contribution has peaked. The significant fall in U.S. productivity growth is unlikely to be purely cyclical, and the modest European revival of productivity also points to the limited impact of technological change and patchy liberalization of product and labor markets in many countries."

However, according to the report, the "lull" in productivity could also be due to a transition phase to a second wave of ICT-driven productivity growth still to come.

Gail Fosler, Executive Vice President and Chief Economist of The Conference Board, said: "Today's business models have reached a certain level of technology saturation, and incentives for creating a second wave of applications are weak. But there are many industries, in particular in services, in which the potential for more productive technology use seems large. Future productivity gains may be waiting for a new generation of business applications."

As in other years, the report also presents the productivity and labor input estimates for individual countries.

U.S. labor productivity slowed for the third consecutive year in 2006 and was well below that of the other two largest advanced economies in the world, Germany and Japan (2.5% in 2006). The latest productivity estimates, running up to the third quarter 2006, suggest that most of the U.S. slowdown comes from service sectors.

Within Europe, Germany displayed a significant acceleration in productivity growth (2% in 2006 compared to 1.3% in 2005) even though most of its economic recovery is likely to be cyclical. External factors in the form of improved export performance account for a substantial part of Germany's productivity recovery while the domestic sector, particular consumer expenditure, still remains weak.

Nordic countries, in particular Finland (3.7%) and Sweden (2.8%), showed productivity growth well above the European average. In contrast, the productivity record of most Mediterranean countries, particularly Italy, Portugal and Spain, remains consistently weak at 0.1%, 0.3% and -0.5% respectively.

Other significant findings in the report include:

Productivity recovery in Japan is strong for the third consecutive year, reaching 2.5% in 2006. Most of the recovery in Japan is related to a better export performance of the manufacturing sector. However service productivity growth remains a concern.
Productivity growth in developing economies was strong, with India and China growing at around 7% and 9-10% respectively in the past two years. However, there are questions about how sustainable this is, given that recent productivity gains are in part due to structural changes in transforming economies.
The UK continues to enjoy steady growth in labor productivity, 1.1% in 2005 growing to 1.7% in 2006, but the UK remains outside the top 10 most productive economies.
Greece is the only country in the "old" EU-15 that continues to catch-up on the rest of Europe (productivity growth rate 2.5%), but productivity growth in Ireland (0.9%) has slowed down to well below the European average.
There was a significant recovery in productivity growth rates in the EU's new member states ("EU12") rising from 2.5% in 2005 to 3.9% on average last year.

THE CONFERENCE BOARD

More information about The Conference Board.

ABOUT THE AUTHORS

Gail Fosler is Executive Vice President and Chief Economist of The Conference Board. She directs The Conference Board's worldwide Economics Research Program, which produces major studies on economic policy issues and the widely watched Leading Economic Indicators, the Consumer Confidence Index, the Help-Wanted Index and the Business Confidence Index. Fosler also directs The Conference Board's global operations in key European and Pan-Asian markets, including China and the Middle East.

Bart van Ark is Director for International Economic Research at The Conference Board, and a recognized expert on international comparisons of productivity and living standards. Dr. van Ark is Professor of Economics at the University of Groningen (The Netherlands) and Director of the Groningen Growth and Development Centre. His work focuses on international comparisons of economic performance in Europe, North America and Asia.

ABOUT THE REPORT

This Executive Action report offers the most up-to-date and timely data on key productivity and income trends through 2006 based on The Conference Board and Groningen Growth and Development Centre's Total Economy Database. The four statistical tables provide a comprehensive overview of productivity growth rates and levels for 38 countries, including complete coverage of advanced economies in Western Europe, North America and Japan, and estimates for major emerging economies, including countries in Central and Eastern Europe, India, China, Mexico and Turkey. Underlying the tables in this report is a publicly available database with series on output, employment and labor productivity covering 101 economies and 98 percent of world output. The data and detailed source descriptions are available on an annual as well as country-by-country basis from:

www.conference-board.org/economics/research.cfm

The aggregate analysis is supported by The Conference Board analysis of sectoral and industry trends which are published in cooperation with the Groningen Growth and Development Centre http://www.ggdc.net/index-dseries.html

View our Executive Action offerings

For further information contact:
Frank Tortorici
(1) 212 339 0231
f.tortorici@conference-board.org