Labor productivity as a driver of growth Centrale Bank van Curaçao en Sint Maarten Research Department Shekinah Dare March 23, 2018
Table of Contents 1. Introduction 2. Measuring labor productivity 3. Labor productivity as a driver of growth 4. Ways to improve labor productivity 5. Labor productivity in Curaçao 6. Curaçao s productivity in an international perspective 7. Conclusion 2
Introduction High productivity growth means a a strong potential or or sustainable growth rate for the economy. It lowers unit labor costs, boosting profits, and helping contain price inflation. And productivity is the basis for longer-term improvements in standards of living. Ethan Harris Bank of America Merrill Lynch s top global economist 3 3 3
Measuring labor productivity GDP/GVA per capita GDP/GVA per worker GDP/GVA per hour 4 4
Labor productivity as a driver of growth Consumers: -Wages -Jobs Businesses: -Profits -Investments Government: -Tax revenues 5 Economic growth 4
Ways to improve labor productivity Organization -specific Business & policy environment Global factors 6 6
Labor productivity in Curaçao Research conducted by the CBCS (updated by March 2018) Measuring labor productivity in Curaçao 7 Contribution of labor productivity and employment/hours to growth Decomposition labor productivity growth -Have sectors become more or less productive? -Have employment shares shifted to more or less productive sectors? 4 7
Labor productivity in Curaçao Data from the Central Bureau of Statistics Three 5-year periods during 2004-2016 GDP/GVA at constant prices (2000 = 100) 2010/2012: linear interpolation for # workers and hours 8 8
Labor productivity in Curaçao No significant differences between the two methods 8% 6% 4% 2% 0% -2% Change in GDP per hour Change in GDP per hour Change in in GDP GDP per per worker hour Change in GDP per worker Real GDP growth -4% Average change in GDP in GDP per per hour hour (GDP (GDP per per worker): -1.1% -1.1% (-1.3%) -6% 9-8% 2004 2005 2006 2007 2008 20082009 20092010 2010 2011 2011 2012 2012 2013 2013 2014 2014 2015 2015 2015 2016 2016 2016 4 9
Labor productivity in Curaçao Negative contribution of labor productivity 4 4 3 3 2 2 Hours Employment growth growth 1 Hours Employment growth growth 1 Labor productivity growth GDP growth 0-1 Labor productivity growth GVA growth 0-1 -2-2 -3 2004-2008 2008-2012 2012-2016 -3 2004-2008 2008-2012 2012-2016 where Labor productivity is measured as GDP/GVA per worker/hour GDP/GVA growth is the sum of employment/hours growth and GDP/GVA per worker/hour Similar to the Conference Board, the variables are measured in log differences. 10 410
Labor productivity in Curaçao P t P t 1 P t 1 = + + n i=1 n i=1 n i=1 P it P it 1 P it 1 P it 1 P t 1 P it P it 1 P t 1 x Y it 1 Y t 1 x L it L t L it 1 L t 1 x L it L t L it 1 L t 1 (Overall labor productivity growth) (Within effect) (Static shift effect) (Dynamic shift effect) 11 where P t is the productivity level of Curaçao in period t; n Y t = i=1 Y it is the total value added of Curaçao in period t; n L t = i=1 L it is the total employment of Curaçao in period t; and i = 1,, n is the i th economic sector of Curaçao
Labor productivity in Curaçao - Within effect - Dynamic shift effect + Static shift effect 1 0-1 -2 Within effect Static shift effect Dynamic shift effect Labor productivity growth -3 2004-2008 2008-2012 2012-2016 11 124 12
Labor productivity in Curaçao Other services Private households 2012-2016 Health and social work Education Public administration and defense Real estate, renting, and business activities Financial intermediation Transportation, storage, and communication Hotels and restaurants Wholesale and retail trade Construction Utilities Manufacturing Agriculture, fishery, and mining 13-1.0-0.8-0.6-0.4-0.2 0.0 0.2 0.4 0.6 0.8 1.0 Percentage point contribution to productivity growth 1213
Percentage point change in employment share Labor productivity in Curaçao 0.6 Aggregate average productivity level 0.4 0.2 0.0-0.2-0.4-0.6 13 11 6 5 14 12 4 10 0 10 20 30 40 50 60 70 80 90 100 110 120 Average productivity level at constant prices, in thousand NAf. (2000=100) 3 1 7 9 2 8 Agriculture, fishery, and mining (1) Manufacturing (2) Utilities (3) Construction (4) Wholesale and retail trade (5) Hotels and restaurants (6) Transportation, storage, and communication (7) Financial intermediation (8) Real estate, renting, and business activities (9) Public administration and defense (10) Education (11) Health and social work (12) Private households (13) Other services (14) 13 14 414
Percentage point change in employment share Labor productivity in Curaçao 15 0.4 0.2 0.0-0.2 3 7 5 6 14 13 11 9 Aggregate average productivity growth 12 10 8-0.4-25% -15% -5% 5% 15% 25% 35% 45% Average productivity growth, in % 2 1 Agriculture, fishery, and mining (1) Manufacturing (2) Utilities (3) Construction (4) Wholesale and retail trade (5) Hotels and restaurants (6) Transportation, storage, and communication (7) Financial intermediation (8) Real estate, renting, and business activities (9) Public administration and defense (10) Education (11) Health and social work (12) Private households (13) Other services (14) 1415
Labor productivity in Curaçao Static: financial intermediation, manufacturing, and real estate, renting, and business activities sectors Dynamic: manufacturing sector Tourism sector Below-average productivity levels in all periods Below-average growth rate (negative) in the last period 15 164 16
Curaçao s labor productivity in an international perspective Research conducted by the CBCS (forthcoming) Curaçao s labor productivity performance in a Latin American and Caribbean context 17 1617
Curaçao s labor productivity in an international perspective Data from the Central Bureau of Statistics and World Bank Sample period: 1999-2016 Hours data for Curaçao start from 2002 GDP at constant prices (2010 = 100) 2010/2012: linear interpolation of # workers and hours 188 18
Curaçao s labor productivity in an international perspective 19 GDP per worker GDP per capita GDP per hour Key trading partners Netherlands 0.5% 0.8% 0.6% United States 0.9% 0.6% 0.9% Latin Am erica Argentina 0.9% 1.7 % 1.0% Brazil 0.6% 1.3% 1.0% Chile 1.3% 2.7 % 2.0% Colombia 1.6% 3.1% 2.1% Costa Rica 1.2% 3.0% 1.6% Ecuador 1.8% 1.9% 2.6% Mexico 0.1% 1.1% 0.4% Peru 3.5% 4.6% 3.9% Uruguay 2.7 % 4.1% 3.1% Caribbean Barbados 1.3% 0.3% 1.7 % Jamaica -0.4% -0.5% 0.0% St. Lucia 0.9% 1.3% 1.3% Trinidad & Tobago 1.2% 2.0% 1.6% Curaçao -1.8% -0.9% -1.9% 17 2006-2016 GDP per worker GDP per capita GDP per hour Key trading partners Netherlands 0.8% 0.6% 0.8% United States 0.7 % 1.3% 0.3% Latin Am erica A rgentina -0.2% -0.1% -0.2% Brazil -0.9% -0.5% -0.5% Chile 1.4% 2.6% 2.1% Colombia 1.5% 3.0% 2.0% Costa Rica 0.6% 2.7 % 1.4% Ecuador 1.0% 2.0% 1.6% Mexico 1.0% 1.5% 1.0% Peru 2.9% 3.6% 3.3% Uruguay 2.4% 2.8% 2.8% Caribbean Barbados 0.9% 0.3% 1.2% Jamaica -0.3% 0.1% 0.0% St. Lucia -0.2% 0.5% 0.2% Trinidad & Tobago -0.9% 0.2% -0.5% Curaçao -1.4% -1.4% -1.1% 419 2011-2016
Trend productivity growth has remained negative 8% 6% Curaçao s labor productivity in an international perspective 5% 6% 4% HP BP filter 3% 4% 2% 2% 1% 0% 0% -1% Barbados Caribbean Curaçao Jamaica Latin America St. Lucia Trinidad and Tobago -2% -2% -3% -4% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 1820
Conclusion What have we seen so far? Labor productivity is a key driver of economic growth! However, Curaçao s labor productivity: has been declining for years contributed negatively to economic growth showed a shift from more productive to less productive sectors 19 21 What is next? Focus on improving labor productivity to generate economic growth 421
Thank you for your attention! 22