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Growing Productivity: A New Challenge for an Old System

May 29, 20:09 UTC+3
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Increasing labour productivity is a key factor in economic development. However, the ageing population and lack of knowledge in new technologies have led to a slowdown in the growth of this index worldwide: in 2011–2015 the rate was 1.5 times less than in 1995–2007. For Russia, this issue is even more pressing: its labour productivity is twice as low as that of the ОECD countries. The Government’s goal is to ensure its 5–6% growth annually. The Stolypin Club and the Center for Strategic Research (CSR) have come up with a number of solutions based on unlocking high tech potential, development of education and improvement of work and life conditions.

The global economy is facing a slowdown in labour productivity, sometimes accompanied by a crisis in demographics.

  • According to Moody’s data, from 2011 to 2015 the global labour productivity grew at a pace of 1.7% annually, while from 1995 to 2007 the growth pace was 2.6%. The reasons include ageing population, a slowdown in the growth of human capital, lack of education and skills required to work with advanced technologies.
  • The IMF reports that in 2015 the labour productivity growth stood at 0.6% in the Eurozone and Japan, at 3.7% in China against the rate of 8.1% in 2007–2013, while in Brazil it went down to 4.1%.

To resolve the issue, governments, economists and experts worldwide propose a number of priority measures:

  • increase of investment in human capital, including adult education;
  • investment in infrastructure, technology, innovation and R&D;
  • deregulation.

In Russia, the issue of low labour productivity is the most pressing.

  • The ОECD reports that Russia is two to three times behind its member countries in terms of labour productivity. In 2015, the contribution to the GDP per employee in Russia was USD 23.2 per hour, while in the ОECD countries it made USD 46.5 per hour.
  • According to the Russian Federal State Statistics Service, in the last five years the labour productivity has virtually remained flat: in 2013 and 2014 it increased by 1.8% and by 0.7%, respectively, and in 2015 it went down by 2.2%.

This results in a widening gap between Russia and leading economies.

The growth of labour productivity should be accelerated to at least 5–6% annually, President Vladimir Putin stated at the meeting of the Council for Strategic Development and Priority Projects in March 2017. ”These numbers can be achieved through boosting efficiency of the national economy upon the whole and individual businesses in particular, offering new state-of-the-art work stations and modern jobs and competitive salaries,” he said.

Maxim Oreshkin, Russia’s Minister of Economic Development, has named the main reasons behind low labour productivity:

  • low level of management and technology competencies;
  • underdeveloped project financing vehicles;
  • numerous industrial regulations with excessive requirements;
  • retraining issues, inadequate job search mechanisms, high social risks of mass layoffs.

Another reason is a high degree of wear and tear of fixed assets. In late 2015, it was 47.7% across the national economy. In some industries, it was even higher: 55.8% in transportation and communications, 55.4% in mining, and 53.9% in healthcare and social services.

A new Labour Productivity priority project aims to solve these issues. The Government is to approve the passport of the programme by September 2017. A number of experts are involved in the process as well.

According to the Stolypin Club:

  • Upgraded technology and increasing efficiency of existing businesses will add RUB 18 trillion to the country’s GDP by 2020.
  • Industry modernisation should be driven by growing labour productivity, high technology, energy efficiency, imports of advanced equipment both in traditional sectors and in the economy of the future (information technology, engineering services, biotechnology, etc.).

Alexey Kudrin, Head of the Center for Strategic Research, has listed the Center’s proposals in an interview to TASS:

  • Labour productivity growth should be driven by new technologies.
  • This requires investment in human capital, which needs an increase in education and healthcare spending by 0.8% and 0.7% of the GDP, respectively.
  • Universities must become new technology development, promotion and circulation hubs in their regions.
  • New management tools should be implemented.

At the CSR, they expect a 30% growth in labour productivity by 2024, should these proposals be followed.

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