PRODUCTIVITY AND JOBS

IN A GLOBALISED WORLD:

(HOW) CAN ALL REGIONS

BENEFIT?

SMARTER Conference, Seville27 September 2018

Rudiger Ahrend

Head of Economic Analysis, Statistics and Multi-level Governance

OECD Centre for Entrepreneurship, SMEs, Regions and Cities

• Productivity and jobs:the regional diffusion challenge

• What supports “catching up”?

• What can policy do to leverage the potential of all regions?

2

Roadmap for the presentation

PRODUCTIVITY AND JOBS:THE REGIONAL DIFFUSION

CHALLENGE

3

Long-term decline in productivity

growth rates: not just the crisis

Source: OECD Productivity database; moving averages (t, t-1, t-2)

Aggregate trends of labour productivity growth, 2000-2016

4-0.5

0

0.5

1

1.5

2

2.5

3

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Japan US Euro Area

Financial crisis

Convergence in per capita GDP and labour productivity in the OECD/EU

Frontier regions

• most productive regions accounting for 10% of total employment

Catching up/Diverging

• Productivity growth is 5% higher/lower than in the frontier over a 13 year period

5

So

urc

e :

OE

CD

(2

018

) P

rod

uct

ivit

y a

nd

Jo

bs

in a

Glo

ba

lise

d W

orl

d:

(Ho

w)

Ca

n A

ll R

egio

ns

Ben

efit

? Productivity gaps have

narrowed in the EU and

the OECD since 2000

6

But gaps within some

countries are widening

So

urc

e :

OE

CD

(2

018

) P

rod

uct

ivit

y a

nd

Jo

bs

in a

Glo

ba

lise

d W

orl

d:

(Ho

w)

Ca

n A

ll R

egio

ns

Ben

efit

?

Countries follow two growth models

Distributed growth model:Catching up supports productivity growth

• AUT, CZE, DEU, ESP, ITA, POL, PRT, ROU

Concentrated growth model: The “frontier” dominates growth

• BGR, DNK, FIN, FRA, GBR, GRC, HUN, NLD, SVK, SWE

0

0.01

0.02

0.03

0.04

0.05

0.06

0.07

0.08

0.09

0.1

Within countries Across countries Total inequality

Theil index for GDP per capita (European TL2 regions)

The result: Inequality across European

regions declined, but not within countries

75%

25%

50%

50%

7

Source : OECD (2018) Productivity and Jobs in a Globalised World: (How) Can All Regions Benefit?

55 000

65 000

75 000

85 000

95 000

105 000

2000 2002 2004 2006 2008 2010 2012 2014

Top 10% Bottom 90%Average labour productivity (2010USD)

1% per year

1.1% per year

The challenge of combining growth,

catching up and inequality reduction

0.13

0.14

0.15

0.16

0.17

0.18

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Catching up dominates Frontier pulls away

Average inequality in per capita GDP across TL3 regions (Gini)

Catching up dominates: AUT, CZE, DEU, ESP, ITA, POL, PRT, ROU

Frontier pulls away: BGR, DNK, FIN, FRA, GBR, GRC, HUN, NLD, SVK, SWE

55 000

65 000

75 000

85 000

95 000

105 000

2000 2002 2004 2006 2008 2010 2012 2014

Top 10% Bottom 90%Average labour productivity (2010USD)

1.6% per year

0.9% per year

8

So

urc

e :

OE

CD

(2

018

) P

rod

uct

ivit

y a

nd

Jo

bs

in a

Glo

ba

lise

d W

orl

d:

(Ho

w)

Ca

n A

ll R

egio

ns

Ben

efit

?

WHAT SUPPORTS “CATCHING UP”?

WELL-FUNCTIONING CITIES

9

• Well-functioning cities

– Home to knowledge-intensive (traded) sectors

– Larger markets can support economic diversity and dynamism

– Agglomeration economies (beyond borders) through urban-rural linkages

What supports catching up?

10

European frontier regions tend to be urban,

catching-up regions rural or intermediate

TL3 regions, 2000-2014

Frontier regions are those with the highest labour productivity (per worker GDP) accounting for at least 10% of total employment.Catching-up/diverging regions grew 5% more/less over a 15-year period than their country’s frontier

11Source :Adapted from OECD (2016) OECD Regional Outlook 2016: Productive Regions for Inclusive Societies

Traded clusters: Contrast between

urban and rural regions

12

Non-traded clusters

Music and Sound Recording

Communications Equipment and Services

Video Production and Distribution

Biopharmaceuticals

Financial Services

Insurance ServicesMarketing, Design, and

Publishing

Business Services

AppliancesNonmetal Mining

Agricultural Inputs and Services

Apparel

Fishing and Fishing Products

Leather and Related Products

ForestryFootwear

10 000

20 000

30 000

40 000

50 000

60 000

70 000

0 10 20 30 40 50 60 70 80 90 100

Average wage in 2010 EUR

Percentage of FTE in mostly urban areas, %

Source : OECD (2018) Productivity and Jobs in a Globalised World: (How) Can All Regions Benefit?

13

Space matters: proximity to cities benefits

surrounding rural & intermediate regions

Source: Ahrend and Schumann (2014) “Does regional economic growth

depend on proximity to urban centres?”

WHAT SUPPORTS CATCHING UP?

TRADABLE SECTORS

14

• Tradable sectors (that could be traded)

– Face competition even if they are not traded

– Might overcome market size and institutional constraints

– Avoid economic imbalances from excessive expansion of non-tradables

15

What supports catching up?

Annual average GVA growth, 2000-13 Percentage of total GVA (right axis), 2013

-20

-10

0

10

20

30

40

50

60

70

80

-1

-0.5

0

0.5

1

1.5

2

2.5

3

3.5

4

Tra

dabl

ese

rvic

es

Indu

stry

Agr

icul

ture

Non

-tra

dabl

ese

rvic

es

%%

-20

-10

0

10

20

30

40

50

60

70

80

-1

-0.5

0

0.5

1

1.5

2

2.5

3

3.5

4

Tra

dabl

ese

rvic

es

Indu

stry

Agr

icul

ture

Non

-tra

dabl

ese

rvic

es

%%

-20

-10

0

10

20

30

40

50

60

70

80

-1

-0.5

0

0.5

1

1.5

2

2.5

3

3.5

4

Tra

dabl

ese

rvic

es

Indu

stry

Agr

icul

ture

Non

-tra

dabl

ese

rvic

es

%%

Goods

?

16

The nature of tradable sectors is changing

… but not in all parts of Europe

EU low-growth regions EU low-income regions Other European regions

Tradable services

Low-income: <50% of EU-average per capita GDP; low-growth: <90% per capita GDP and below average growthSource : OECD (2018) Productivity and Jobs in a Globalised World: (How) Can All Regions Benefit?

17

The 2007-08 crisis revealed

unsustainable growth models

21 000

22 000

23 000

24 000

25 000

26 000

27 000

Per capita GDP

17 000

18 000

19 000

20 000

21 000

22 000

23 000

24 000

25 000

26 000

Per capita GDPAndalusia, Spain Central Macedonia, Greece

• Across the OECD real per capita GDP in 2015 remained below 2007-08 levels in 135 out of 350 TL2 regions

• Construction- and consumption-fueled growth turned out to be unsustainable

Source : OECD (2018) Productivity and Jobs in a Globalised World: (How) Can All Regions Benefit?

Regions with strong pre-crisis increases

in non-tradable sectors lost more jobs

18

Calculations based on 208 OECD TL2 regions. Those regions with the largest shifts towards non-tradable sectors suffered higher employment losses, on average, following the 2007-08 crisis.

-3.5

-3

-2.5

-2

-1.5

-1

-0.5

0

0.5

1

Less than 2.5percentage points

increase

2.5 to 5 percentagepoints

5 to 7.5 percentagepoints

More than 7.5percentage points

increase

Change in the share of non-tradable employment, 2000-07

Employment growth (%), 2008-14

So

urc

e :

OE

CD

(2

018

) P

rod

uct

ivit

y a

nd

Jo

bs

in a

Glo

ba

lise

d W

orl

d:

(Ho

w)

Ca

n A

ll R

egio

ns

Ben

efit

?

WHAT CAN POLICY DO TO LEVERAGE THE POTENTIAL

OF ALL REGIONS?

19

• Reigniting (public) investment

• Structural reforms (accompanied by complementary policies at the local level)

• Multi-level governance and territorial reforms

20

Broad policy responses

This map is for i l lustrative purposes and iswithout prejudice to the status of or sovereigntyover any terri tory covered by this map.

Source of administrative boundaries: Nationalstatistical offices, Eurostat (European Commission)© EuroGeographics and FAO Global Administrative

Investment (GFCF in 2005 EUR) in 2014 higher than in 2007-08

Investment set back by 7 years

8 - 12 years

13 - 16 years

17 - 19 years

20 or more years

350 km

So

urc

e :

OE

CD

(2

018

) P

rod

uct

ivit

y a

nd

Jo

bs

in a

Glo

ba

lise

d W

orl

d:

(Ho

w)

Ca

n A

ll R

egio

ns

Ben

efit

?

• Strategically diversifying regional economies

– Specialised regions more productive, diversified ones grow faster

– Manufacturing important, but tradable services are gaining

• Identifying and building on local strengths

– Linking investment in skills, FDI, and knowledge from the supply chain

– Taking advantage of opportunities for territorial branding

• Integration across actors and policies

– Skills development for place-based needs is a shared responsibility

– But skills policies might not be enough: trade shocks vs automation

Strategies to promote catching up and

employment growth

21

OECD (2018) Productivity and Jobs in a Globalised World: (How) Can All Regions Benefit

http://www.oecd.org/publications/productivity-and-jobs-in-a-globalised-world-9789264293137-en.htm

OECD (2016) OECD Regional Outlook 2016: Productive Regions for Inclusive Societies

http://www.oecd.org/regional/oecd-regional-outlook-2016-9789264260245-en.htm

Thank you

22

• The distinguishing feature of “tradable” sectors is that they are exposed to international competition

• Delineating tradable and non-tradable sectors is not straightforward in practice

• As sectors are highly aggregated in regional data the aim is to find a classification that captures mostly tradable/non-tradable activities

The OECD Regional Outlook 2016 classifies sectors as:

23

Classification of tradable sectors:

exposure to international competition

Tradable sectors Non-tradable sectors

A: agriculture, forestry and fishing F: construction

B-E: industry (manufacturing, mining and quarrying, supply of utilities: electricity, gas water, etc.) excluding construction

G-I: wholesale and retail trade, transport, accommodation and food service activities

J: information and communication L: real estate activities*

K: financial and insurance activities M-N: professional, scientific and technical activities, administrative and support service activities

R-U: arts, entertainment and recreation, other service activities, activities of household and extra-territorial organisations and bodies

O-Q: public administration, defence, education, human health and social work activities

* excluded in parts of the analysis