Employment is rising in OECD countries but most jobs continue to be created in relatively low-productivity, low-wage activities, says a new OECD report.
The latest Compendium of Productivity Indicators says the trend has compounded the impact of generally weak business investment on productivity growth.
The downward pressure on wages may have allowed firms to defer investment decisions, instead meeting increased demand by hiring additional staff and, in turn, undermining the potential for investment-driven productivity growth, the report says.
In France, Germany and the United Kingdom, the top three sectors with the largest employment gains between 2010 and 2017 accounted for one third of total job creation but paid below average wages. Moreover, in Belgium, Finland, Italy and Spain, industries with above average labour productivity levels saw net job losses.
The data show wage growth (adjusted for inflation) improving in recent years but remaining below pre-crisis rates in two thirds of OECD countries despite a period of negligible or slow wage growth, and earlier declines in purchasing power in the aftermath of the crisis. Indeed, real wages remain below crisis levels in Greece, Italy and Spain, and have also contracted in recent years in Belgium and Canada.
More jobs in lower paid sectors such as accommodation and catering and health and residential care, weigh on average wages across the economy as a whole.
The report also shows that the share of income from economic activity going to labour through wages has continued to fall over the past 15 years in many countries, most markedly in manufacturing. By 2017, the sharpest falls were in Ireland, Poland and Portugal but labour income shares have also declined substantially in Australia, Hungary, Israel, Japan and the US.
With labour costs now beginning to rise in many countries, firms may start to reconsider investment decisions, the report adds. But political uncertainties, trade tensions and the erosion of business and consumer confidence may continue to weigh on investment. The report calls for policies to stimulate investment, capitalise on the efficiencies and economies of scale provided by the digital transformation and encourage growth in high productivity activities.
Slowing productivity growth limits the scope for improvements in material well-being. The OECD says productivity is ultimately a question of “working smarter” – measured by ‘multifactor productivity’ – rather than “working harder”. It reflects firms’ ability to produce more output by better combining inputs through new ideas, technological innovations, as well as by way of process and organisational innovations.