OECD report: new ‘nexus’ approach needed to tackle productivity and inequality challenges

Posted On: 31st May 2016

Declining productivity growth and rising inequality are two of the biggest obstacles to improved economic performance, according to a new OECD report.economy_7064095Sml

The Productivity-Inclusiveness Nexus explores the root causes behind each of these challenges, examining the extent to which they are connected, and at how to take a coherent policy response.  In particular, it signals the need to expand the productive assets in an economy by investing in the skills of people and in an environment where all firms and regions have a chance to succeed.

The report discusses possible complementary explanations for the slowdown in productivity growth, which has affected some 90% of OECD countries since the turn of the millennium and has now spread to emerging market economies. It says the failure to translate rapid technological change into productivity growth reflects a mix of cyclical and structural factors.

One cyclical factor has been the persistently low investment in physical capital, in a context of weak global demand. On the structural side, there has been growing dispersion in productivity performance between leading, or ‘frontier’ firms, and other companies that are lagging behind.

The report finds several, possibly complementary, explanations for the dispersion in productivity growth, such as the breakdown of technology diffusion and the possibility of growing capture of rents by the frontier firms.  A related issue is the a lack of competition in certain markets, which may have on the one hand, allowed poorly-performing firms to linger, trapping valuable human and capital resources in unproductive activities, entrenching inequalities of  income, while on the other increasing leading firms market power and raising barriers to entry.

Fine more information here.

Gabriela Ramos, Special Counsellor to the OECD Secretary-General, Chief of Staff and Sherpa to the G20, who is heading the work behind the report in the context of the All on Board for Inclusive Growth Initiative, said:

“Tackling the ‘nexus’ of productivity and inequality challenges will require a new, coherent and multidimensional policy approach in order to ensure that all individuals, firms and regions can realise their productive potential and share in the benefits of improved productivity growth. In practice, this will call for measures that aim to help people, businesses and regions lagging behind.”

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