Productivity is often defined as the measure of the output per work hour. It is also shown to be pro-cyclical typically. That means productivity increases during the economic rise and fall (or even declines) in the recession of economy.
A few reasons were forwarded to explain this. A reason states that the capital and labor input are worked harder in rising times rather than in falling times. Another declares that the re-allocation of resources for more productive activities would be faster if the economy grows faster than it slows down.
The exceptions for pro-cyclicality
In 2009, the growth of productivity was believed to fall further in a lot of countries. But there seems to be several exceptions for the procyclicality of labor productivity.
Europe and United States are two examples of experiences that reflect these economic wrinkles. As compared to each other, striking differences are observable between these regions in relation to the growth rates of productivity that they entered the recession with.
For a longer period from 2000 to 2008, labor productivity of the European Union increased at 1.5% against 2% in the USA. (These figures are much lower than the figure of the original EU-15 excluding the new members from Eastern and Central Europe.)
The differences show a more effective use of labor, capital, and other growing sources in the USA. The current productivity advances in the USA have been realized, but through quick layoffs. This suggests that the remaining firms and workers' productivity is actually strengthening.
Productivity growth's traditional rates
During the period before 2008, the Euro showed a very weak productivity growth (less than 1%). It was imputed to the increases of employment which come from a large pool of labor reserve.
In the same period, productivity and output growth rates in the Euro turned negative following traditional patterns which the growth of employment could not adjust to a falling economy in the Europe as quickly as in the USA,
At present, rates of productivity growth in many advanced economies are slowing down below historical structural trends of productivity. They represent the rate that productivity can grow.
Get back to structural growth trends, an improved productivity through investment in new innovation and capital is necessary - not only through cost reduction of current resource base.
It would include investment in innovation and technological change, performance and skill level of the workforce, and all the intangibles of the organization (workplace and management practices, ICT applications, human resource strategies and organizational structure).
All of the given current strained economic climate is the major challenge. This also contains the expectation which high rates of productivity growth imply better efficiency of resources after the environment of economy improves.
In addition, productivity growth would translate into higher levels of output. The higher levels of productivity will additionally reflect the presence of strong resource bases in relation to physical and human capital per worker.
As maintained during the recession, they will provide companies with the means for innovating themselves easily out of the downturn resulting in a greater growth of resurgent productivity.
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