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Labor productivity figures and their actual consequences: European champions in percentage growth, mediocre in absolute growth

de Dordia Tereza 20.10.2016

productivitateAccording to Eurostat, Romania is the EU champion in labor productivity’s growth percentage over the past decade, with a plus of 42%.

We managed to outrun Lithuania (+ 36%), Slovakia (+ 34%), Poland (+ 31%) and Bulgaria (+ 30%), in terms of euro per hour of work.

From 5.7 euros in 2005, we climbed to 8.1 euros per hour in 2015 (see table).

Having the good news announced, let us hear the less good news. Given the very low start level, we did not manage even in these conditions to reach the labor productivity registered ten years ago in Poland or the Baltic countries. This situation explains so eloquently the development gap that we have to recover not only to the Western countries, but to the colleagues from the former Eastern Bloc.

European statistics indicate that we are somewhere at the half compared to the Czech Republic and 40% below Poland in terms of efficiency of the economic activities. Moreover, we are two and a half times worse than Greece, the only EU country that has failed to improve this essential parameter for the economy and sees the full consequences.

tabel1-11

*

  • Evolution of labor productivity (2005-2015)
  • Thousands of euro/employee             Euro/hour of work       Growth in ten years (%)
  • * Data related to Ireland have a break in the statistical series in 2011 therefore we have removed them from the analysis

*

Yet the divergence is increasing …

Paradoxically, the very high increase percentage did not bring us closer to most of the EU countries (marked in red) in the same period of time.

The explanation is that the favorable difference, accumulated during a decade in absolute terms, was located exactly at the middle of the European ranking, far below the results of countries such as Slovakia, Lithuania, the Czech Republic but also Spain, Germany and Sweden.

To top it all in terms of statistics, although we were the first in the pace of labor productivity growth, in absolute terms this indicator increased below both the European average and the Eurozone average (+2.4 euros / hour compared to the EU28 average of +2.9 euro and the EA19 average of +3.4 euro). Although it may seem bizarre, we were the fastest without getting close to the group in front of us.

The fact is that although our pace of growth in labor productivity was about five times higher than in Germany or France, the absolute value of this indicator rose less than in the Western developed states (consequently, the work efficiency gap increased compared to 12 EU countries) and we currently are five times weaker.

In this context, policy makers might need to stop stimulating companies that have a level of productivity below the national average and focus the support on the businesses with a productivity level equal to or exceeding the European average. Otherwise, we will not get closer to the Western economies and will continue to have a great mass of socially assisted employees because they have insufficient income.

Unfortunately, the very clear statistical data do not keep us from dreaming of wages that cannot result from the financial results of the productive sector. Besides, the budgetary salaries and the pensions based on these salaries that cannot be paid in LEI at the expected levels, because they will not be sustainable in EURO. Of course, there would be the extensive version of increasing the number of employees in the economy but, as seen in its evolution, it will remain to have a modest effect.

Given the anemic productivity growth close to zero (7.1% in 2013, 4.7% in 2014, 0% in 2015 and -1.8%, the average in the first seven months of 2016), the alternative of increasing the nominal income over the productivity growth (which should become a central piece of the official communications and public debate, as a decisive argument in granting any social benefits or increase of the budgetary salaries) looks unsustainable.

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