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Past Event

KDI-Brookings Workshop on the Productivity Puzzle

By: Zia Qureshi and Karim Foda

On January 13, 2017, scholars from the Korean Development Institute (KDI), Brookings, and several international organizations (IDB, IMF, OECD, World Bank) came together to discuss factors that affect productivity growth and help explain its recent slowdown. This one-day workshop was held at Brookings and co-hosted by chairs Dongseok Kim, Senior Vice President at KDI, and Kemal Dervis, Vice President and Director of the Global Economy and Development program at Brookings.

A total of five sessions covered a range of issues related to productivity from both macro (country) and micro (firm-level) perspectives. The first half of the day focused on a global coverage of the issues while the second half featured a spotlight on Korea.

The opening session began with an overview of the macro trends around the world, presenting the productivity slowdown as real and not an artifact of mismeasurement and as a global phenomenon that is broad-based across countries and sectors. An analysis on the decoupling of wages from productivity across OECD economies set the stage for a discussion on the links between slowing productivity growth and rising wage and income inequality.

The second session addressed the impacts of the global financial crisis and slowing investment growth on productivity. The discussion featured the role of pre-crisis financial vulnerabilities and post-crisis credit disruptions. While the slowdown in productivity growth despite booming technology presented a puzzle, so did the slowdown in investment despite the low cost of capital. The two puzzles appeared to be interconnected.

The third session focused on understanding the productivity slowdown by examining performance at the firm level. Productivity dispersion among firms had widened and the discussion explored the role of factors that were constraining the broader diffusion of knowledge and productivity gains from technological innovations across firms, including education, innovation policies, competition, and labor market efficiency. It also examined the links between the productivity slowdown and the parallel trend of a slowdown in business dynamism.

The two afternoon sessions were devoted mainly to the productivity dynamics in Korea. The discussion began with an overview of aggregate and sectoral trends in productivity growth in Korea. This was followed by presentations using firm-level data to evaluate the role of technical versus allocative efficiency and firm entry in the productivity performance of Korean manufacturing and to examine the effects of labor market flexibility and labor reallocations on productivity and wages. Finally, a spatial econometric model was presented as a method to analyze industry-level productivity considering interconnectivity among industries.

A key, cross-cutting theme emerging from the sessions was that increasing gaps in productivity between firms were an important factor slowing growth in aggregate productivity, reflecting a weakening of diffusion of innovations from leading (typically large) firms to the rest of the firms. A related theme was that the increased dispersion of productivity between firms in turn was a factor contributing to the rise in inequality of labor earnings and of income more broadly.

These findings point to a close nexus between technology, productivity, and distribution and the need for more research to understand it better. At Brookings, this nexus and its implications for policy are the focus of a project being undertaken jointly by the institution’s Global Economy and Development program and the Chumir Foundation for Ethics in Leadership.

Presentations (agenda attached above):

  1. What’s happening to productivity growth? Key macro trends and patterns, Karim Foda, Brookings
  2. Decoupling of wages from productivity: macro facts and micro mechanisms, Cyrille Schwellnus, OECD
  3. Financial frictions and the great productivity slowdown, Romain Duval, IMF
  4. Weak investment in uncertain times: causes, implications, and policy responses, Ayhan Kose, World Bank
  5. Productivity dispersion and slowdown: a knowledge diffusion story? Dany Bahar, Brookings
  6. Business dynamism in the US and the productivity growth slowdown: connecting the trends, Roberto Fattal Jaef, World Bank
  7. Productivity in Korea, Jungwook Kim, KDI
  8. Resource reallocation and aggregate productivity: firm dynamics in Korean manufacturing, Minho Kim, KDI
  9. Estimation of industry-level productivity with cross-sectional dependence using spatial analysis, Jaepil Han, KDI
  10. Labor reallocation, productivity, and wages in Korea, Changkeun Lee, KDI

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