PRODUCTIVITY AND JOBS IN A GLOBALISED WORLD: (HOW) CAN ALL REGIONS BENEFIT

Committee of the Regions, Brussels, 22 January 2018Workshop on International trade and globalisation – Implications for regional growth, employment and industrial renewal

Alexander C. LembckeEconomics Analysis, Statistics and Multi-level Governance SectionOECD Centre for Entrepreneurship, SMEs, Regions and Cities

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Within countries Across countries Total inequality

Theil index for GDP per capita (European TL2 regions)

Inequality across European regions declined, but not within countries

75%

25%

50%

50%

Source for all slides in this presentation (unless otherwise specified) is:OECD (forthcoming) Productivity and Jobs in a Globalised World: (How) Can All Regions Benefit?

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Long-term decline in productivity growth rates: not just the crisis

Source: OECD Productivity database; moving averages (t, t-1, t-2)

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-0.5

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0.5

1

1.5

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2.5

3

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

%

Japan United States Euro area (19 countries)

Financial crisis

Recent aggregate trends of labour productivity growth, 1997-2014

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Productivity gaps between frontier firms and other firms are widening

Source: Andrews, Criscuolo and Gal (2015).

Labour productivity (2001 = 0.0), 2001-09

Average labour productivity in the 100 globally most productive “frontier” firms in a sector and all other firms.

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European frontier regions tend to be urban, catching-up regions rural or intermediate

TL3 regions, 2000-2014

Frontier regions are those with the highest labour productivity (per worker GDP) accounting for at least 10% of total employment.Catching-up/diverging regions grew 5% more/less over a 15-year period than their country’s frontier

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Not all regionsare divergingCountries follow 2 modelsCatching up supports productivity growth

• AUT, CZE, DEU, ESP, ITA, POL, PRT, ROU

The “frontier” is pulling away

• BGR, DNK, FIN, FRA, GBR, GRC, HUN, NLD, SVK, SWE

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55 000

65 000

75 000

85 000

95 000

105 000

2000 2002 2004 2006 2008 2010 2012 2014

Top 10% Bottom 90%Average labour productivity (2010USD)

1% per year

1.1% per year

The challenge of combining growth, catching up and inequality reduction

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2000

2001

2002

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2012

2013

2014

Catching up dominates Frontier pulls away

Average inequality in per capita GDP across TL3 regions (Gini)

Catching up dominates: AUT, CZE, DEU, ESP, ITA, POL, PRT, ROU

Frontier pulls away: BGR, DNK, FIN, FRA, GBR, GRC, HUN, NLD, SVK, SWE

55 000

65 000

75 000

85 000

95 000

105 000

2000 2002 2004 2006 2008 2010 2012 2014

Top 10% Bottom 90%Average labour productivity (2010USD)

1.6% per year

0.9% per year

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• Well-functioning cities– Home to knowledge-intensive (traded) sectors

– Larger markets can support economic diversity and dynamism

– Agglomeration economies (beyond borders)

• Tradable sectors (that could be traded)– Face competition even if they are not traded

– Might overcome market size and institutional constraints

– Avoid economic imbalances from excessive expansion of non-tradables

What supports catching up?

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• The distinguishing feature of “tradable” sectors is that they are exposed to international competition

• Delineating tradable and non-tradable sectors is not straightforward in practice

• As sectors are highly aggregated in regional data the aim is to find a classification that captures mostly tradable/non-tradable activities

The OECD Regional Outlook 2016 classifies sectors as:

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Classification of tradable sectors: exposure to international competition

Tradable sectors Non-tradable sectors

A: agriculture, forestry and fishing F: construction

B-E: industry (manufacturing, mining and quarrying, supply of utilities: electricity, gas water, etc.) excluding construction

G-I: wholesale and retail trade, transport, accommodation and food service activities

J: information and communication L: real estate activities*

K: financial and insurance activities M-N: professional, scientific and technical activities, administrative and support service activities

R-U: arts, entertainment and recreation, other service activities, activities of household and extra-territorial organisations and bodies

O-Q: public administration, defence, education, human health and social work activities

* excluded in parts of the analysis

2000-07 2008-14

Expansion and decline in non-tradables,Norte (Portugal)

Manufacturing

Tradable services

Agriculture

Non-tradable services

Utilities and resource extraction

-98 000

+12 000

+65 000

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-4 -3 -2 -1 0 1 2 3Employment growth, %

Labour productivity growth, %

Manufacturing

Tradable services

Agriculture Non-tradable services

Utilities and resource extraction

-56 000

-7 000

-77 000

-3

-2

-1

0

1

2

3

4

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-4 -3 -2 -1 0 1 2 3Employment growth, %

Labour productivity growth, %

10

-98 000

-77 000

+12 000

+65 000

-7 000

-56 000

• Decline in manufacturing employment, but growth in productivity and output point to significant restructuring

• Low-productivity jobs created in non-tradables were lost following the crisis

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The 2007-08 crisis revealed unsustainable growth models

21 000

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27 000

Per capita GDP

17 000

18 000

19 000

20 000

21 000

22 000

23 000

24 000

25 000

26 000

Per capita GDPAndalusia, Spain Central Macedonia, Greece

• Across the OECD real per capita GDP in 2015 remained below 2007-08 levels in 135 out of 350 TL2 regions

• Construction- and consumption-fuelled growth turned out to be unsustainable

Regions with strong pre-crisis increases in non-tradable sectors lost more jobs

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Calculations based on 208 OECD TL2 regions. Those regions with the largest shifts towards non-tradable sectors suffered higher employment losses, on average, following the 2007-08 crisis.

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Less than 2.5percentage points

increase

2.5 to 5 percentagepoints

5 to 7.5 percentagepoints

More than 7.5percentage points

increase

Change in the share of non-tradable employment, 2000-07

Employment growth (%), 2008-14

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Tradableservices

Industry Agriculture Non-tradableservices

%%

Annual average GVA growth, 2000-13 Percentage of total GVA (right axis), 2013

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The nature of tradable sectors is changing… but not in all parts of Europe

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Tradableservices

Industry Agriculture Non-tradableservices

%%

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20

30

40

50

60

70

80

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Tradableservices

Industry Agriculture Non-tradableservices

%%

EU low-growth regions EU low-income regions Other European regions

?Goods Tradable services

• Reigniting (public) investment

• Structural reforms (accompanied by complementary policies at the local level)

• Multi-level governance and territorial reforms

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Broad policy responses

Investment (GFCF in 2005 EUR) in 2014 higher than in 2007-08

Investment set back by 7 years

8 - 12 years

13 - 16 years

17 - 19 years

20 or more years

• Strategically diversifying regional economies

– Specialised regions are more productive, diversified ones grow faster

– Manufacturing can be important, but tradable services are gaining

• Building on local strengths

– Linking investment in skills, FDI, and knowledge from the supply chain

– Taking advantage of opportunities for territorial branding

• Integration across actors and policies

– Skills development for place-based needs is a shared responsibility

– But skills policies might not be enough: trade shocks vs automation

Strategies to promote catching up and employment growth

• … and more (launch 26 April 2018)OECD (2018), Productivity and Jobs in a Globalised World: (How) Can All Regions Benefit, OECD Publishing, Paris. 15

• OECD (forthcoming) Productivity and Jobs in a Globalised World: (How) Can All Regions Benefit

• OECD (2016) OECD Regional Outlook 2016: Productive Regions for Inclusive Societies

• Questions & Comments:alexander.lembcke@oecd.org

Thank you

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Higher paying jobs in traded clusters

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Non-traded clusters

Music and Sound Recording

Communications Equipment and Services

Video Production and Distribution

Biopharmaceuticals

Financial Services

Insurance ServicesMarketing, Design, and

Publishing

Business Services

AppliancesNonmetal Mining

Agricultural Inputs and Services

Apparel

Fishing and Fishing Products

Leather and Related Products

ForestryFootwear

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70 000

0 10 20 30 40 50 60 70 80 90 100

Average wage in 2010 EUR

Percentage of FTE in mostly urban areas, %