Productivity in Luxembourg

UEL POSITIONS AND OPINIONS

“Productivity” is a term often used but seldom well interpreted because of the complexity and multidimensionality of the concept. To help understand this phenomenon, a National Productivity Council (CNP) was created a few years ago in Luxembourg. 

Productivity is defined as the ratio, in volume, between an output and the resources used to obtain it. Although resources can be of different kinds, labour productivity is often analysed. If, thanks to technical progress or improved efficiency, more can be produced for the same number of hours worked, then labour productivity is positive. In this case productivity gains can be used to increase wages. If there are no productivity gains, there is simply nothing to redistribute.  

The CNP, in its latest report, confirms several findings made by UEL in recent years, notably that 

• The stagnation of productivity in the Luxembourg economy persists! Overall, the country’s productivity has stagnated since the beginning of the millennium.  
• Luxembourg’s performance is worrying in international comparison. In contrast to Luxembourg, the vast majority of European Union Member States, as well as the EU and the euro zone as a whole, have significantly increased their labour productivity over the period analysed. Luxembourg is therefore gradually losing its advantage over other countries. 

• The contribution of productivity gains to the country’s economic growth is low. This development seems difficult to sustain in the long term and the effects of this growth are already being felt today.  

Consequently, UEL would like to underline 5 areas to boost productivity presented in the report: digitalisation, R&D and innovation, human capital, governance and the regulatory framework. With regard to a subject dear to UEL, namely that of talent, the Report states that “the shortage of talent affects almost all sectors and is particularly pronounced with regard to ICT profiles. The lack of IT skills risks thwarting the digital transition. In general, it seems appropriate to strengthen STEM (science, technology, engineering, and mathematics) skills through systematic promotion in the educational curriculum. 

Still in a positive vein, the report states that in view of the significant sectoral differences, differentiated sectoral policies are needed to boost productivity. Indeed, a more detailed analysis of the level of labour productivity reveals significant sectoral differences. Among the main branches of the market sector, two currently stand out for their high productivity (around 150 EUR of value added per hour worked), namely financial and insurance activities and the information and communication branch (mainly driven by ICT), whereas the productivity of the rest of the economy is around 50 EUR per hour worked. It should also be noted that only the ICT sector has seen its productivity increase in recent years. 

In conclusion, UEL agrees with the CNP that “as a key determinant of wealth creation and living standards, productivity must be raised to the level of a priority on the political and economic research agenda”. Productivity is the key to moving towards more qualitative and sustainable growth.