International productivity gaps

Abstract

Cross-country differences in the measurement of labour input contribute to observed productivity gaps across countries. In most countries, labour force surveys (LFS) form a primary source of information for employment related statistics, such as persons employed, employees and hours worked. However, because the coverage of LFS does not fully align with the coverage of activities used to estimate GDP, additional adjustments relying on complementary sources, such as administrative or business statistics, are often applied to bridge conceptual differences, and in many countries, the use of these sources is often preferred to LFS data. Evidence from the 2018 OECD/Eurostat national accounts labour input survey shows that the adjustments made to align measures of labour input with the corresponding measures of production according to the domestic concept, vary considerably across countries, with many countries making no adjustments, in particular, for the measurement of hours worked. This paper demonstrates that countries making no adjustments to average hours worked measures extracted from the original source, such as self-reported hours actually worked in the LFS, appear to systematically over-estimate labour input and, so, under-estimate labour productivity levels. To illustrate the size of this bias, for this group of countries, the paper adopts a simplified component method that introduces a series of explicit adjustments on working time using information available in LFS and complementary sources. The results point to a reduction in relative productivity gaps of around 10 percentage points in many countries compared to current estimates. Although future releases of OECD productivity (levels) statistics will incorporate these changes, it is important to stress that these estimates will only be used as a stop-gap while countries making no, or minimal adjustments, work to leverage all available data sources to produce average hours worked estimates that align with the national accounts domestic concept and that address self-reporting bias; which is the paper’s principal recommendation for those countries that currently make no or only partial adjustments. Indeed, many EU member states, coordinated by Eurostat, are already moving in this direction, with ESA 2010 derogations set to expire by 2020.