First-person perspectives on the world of work
Photo: Marcel Crozet / ILO

The Future of Work Podcast

Episode 33
World of work perspectives

Tackling the productivity challenge

27 February 2023

Productivity is slowing in advanced economies and the trend has spread to emerging economies. These low productivity levels are making it more difficult for countries and regions to overcome the current mix of social and economic challenges because productivity is needed to create better jobs and the so-called fiscal space to finance social programmes such as pensions and improved health care.

The ILO’s World Employment and Social Outlook – Trends 2023 report (WESO Trends) released in January 2023, described productivity as “key to addressing today’s multiple crises” and “a linchpin of a just transition”. So how can productivity be improved and how can those gains be channelled to build the foundations of a just transition to a more sustainable and equitable future?



-Hello, and welcome to this latest edition of the World of Work podcast.

I'm Sophy Fisher.

How are we going to recover

from the current combination of social and economic challenges?

According to an ILO report released last month,

a key element of this will be improving productivity.

The World Employment and Social Outlook Trends 2023 report,

or WESO Trends as it's more usually known,

describes productivity as key to addressing today's multiple crises,

and a linchpin of a just transition.

Productivity has been slowing in advanced economies for a while,

and that trend has now spread to emerging economies.

In this program,

we thought it would be interesting to drill down into this question.

We're going to do that by focusing in particular on one region,

Latin America.

With me to discuss this productivity paradox

are José Manuel Salazar, who is Executive Secretary of ECLAC,

the UN's Economic Commission for Latin America and the Caribbean,

often known as CEPAL.

We also have with us Daniel Saaman,

S enior economist at the ILO.

Daniel and José Manuel, welcome to the show,

and thank you very much for joining us.

-Yes, thank you.

-Daniel, let me start with you.

Why don't we start with a basic question, what is productivity,

and why is it important?

-Well, productivity is an economic measure of efficiency,

and it captures the capability of an economy to produce outputs,

goods, and services,

with a certain amount of inputs, usually, that's capital and labour.

In other words, we can look at a certain period in time,

and we want to know with the workers that we have,

with the machinery that we have,

and with the know how how many goods can we produce?

And the higher the productivity is,

the more goods and services are available.

It's a very important measure for economists

because it really reflects the potential to create well-being,

economic well-being

for the economy, and for the people

that work in it.

-Right, okay. José Manuel, let me bring you in now.

How much of an issue is this lack of productivity growth for Latin America,

a region I know which is still looking to catch up economically with the G7?

-Thank you very much.

I would like to start just by perhaps adding just one concept to

what Daniel said in the sense that Paul Krugman in the '90s

said something that has been quoted a lot on productivity.

He said, "Productivity is not everything,

but in the long term, it is almost everything."

He said, "The capacity of a country to improve

its standard of living through time

depends almost entirely on its capacity to increase output per worker."

With this introduction, I must say

that this is extremely important for Latin America.

By the way, congratulations for a very interesting

and important contribution from the ILO in this report.

It is extremely important pertaining to Latin America

because Latin America has a very serious low-growth problem.

The root of this problem of low growth in Latin America

is that there has been practically no growth of productivity

at all on average in the region the last 30 years,

and this is the region of the world with the worst productivity performance.

This is a real developmental crisis.

The region has failed in promoting technological sophistication,

economic complexity,

production, and export diversification.

The result of all this is that

the countries are in the middle-income trap,

a topic that has been discussed much.

No Latin American country has passed a threshold of $20,000

of income per capita, not even close.

In our case, we're still below 50%

of the productivity of the leading countries like the United States.

This is a real tragedy and the root cause of many economic maladies.

-So what is the problem?

What is the answer to that problem?

I mean, is the issue lack of skills, lack of education and training?

Is it lack of investment? Is it lack of core infrastructure?

What do you see as the key issues that are holding things back there?

-Well, it is a bit of all of those that you mentioned,

and this is where this topic gets

both very interesting and a little bit complex.

Let me enumerate five or six causes

that have been analyzed in the literature and in the conversation.

First is the low productivity growth in a specific sector.

There are studies that analyze where's the source,

and many sectors have very low productivity.

For instance, the services sector is a major problem

in Latin America in this respect,

because while there's a number of high-productivity services sectors

or sub-sectors like the financial sector,

insurance, some medical services, some educational services,

some commercial, some transportation,

the great majority of the services activities

in the region are low productivity.

Why? Because most of the services sectors are informal economy.

Secondly, the type and size of enterprises in the economy is also a problem.

There's a very large dominance of micro and very small enterprises,

and own account workers in the countries.

High-productivity economies have much higher proportions of employment

in large and middle-size enterprises.

There is a problem there of industrial policy

if you like in terms of productive transformation.

Third, innovation systems in Latin America are underdeveloped.

The average investment in research and development

in Latin American countries is one-fourth or even one-fifth

of the average investment in OECD countries.

Fourth, in many countries,

the lack of investment in education and professional training systems,

or the inefficiencies in educational and professional vocational training

is terrible.

A country cannot really fully participate in 21st-century production

and have high productivity without a skilled workforce.

You need modern-day competence as acquired for a technological revolution.

Something that the ILO, by the way, has contributed a lot,

and it's a very important conversation.

Let me just mention two final ones very quickly.

In many countries, the deficiencies in basic infrastructure,

including for urban transport and mobility,

continue to be a very serious barrier.

Finally, of course, you have to mention financial constraints

and some of issue with the tax system.

All of these factors influence,

and in order to make a productivity revolution or--

-It's quite a long and quite daunting list.

However, Daniel, I feel I really ought to ask you,

do you want to add to that or can you give it some context,

how that compares with other regions of the world?

-Yes. Well, I can't really say much on Latin America.

We have José Manuel here as the expert.

I can say that the situation is not as bad in all regions of the world

as José Manuel has just described for Latin America.

However, it is a main finding of the ILO report

that the slowdown in productivity growth is now a worldwide phenomenon.

We have seen this starting in the advanced economies

in G7 countries in the US, in Germany, et cetera,

but those are countries that have already reached a certain level of development.

It's not completely surprising

that those countries at some point slow down a little bit.

In other regions of the world, Asia has been quite successful,

José Manuel has already referred to this.

India and China, for example, are two countries

that have managed to create satisfying productivity

or good productivity growth over the last 20, 30 years.

-Right. Okay. José Manuel, the question is what can be done about it?

As you said, this is quite a long-term problem now,

but do you see any particular ways forward for policymakers,

and to improve the situation?

-Yes, absolutely.

I think economists and economic knowledge

have discussed a lot about these issues of productivity.

One conclusion, of course, is that there are no magic wands.

There's no silver bullets.

There's no single point of solution.

There are solutions of course,

and in a way, they point out to the list of elements that I said in the diagnosis.

For instance,

the first element I mentioned is

low productivity growth in specific sectors.

What do we need for this?

For this, we need sectoral processes for productivity growth,

and the best methodology, there is a methodology to promote this,

and it is called cluster-based policies.

The cluster initiatives basically are cooperative,

iterative gains.

Basically, to put it simply, you bring all the relevant actors

in the private sector,

in government agencies, academic sectors for training, and so on,

and you work on the productivity of those clusters,

of those groups, of enterprises of all sizes,

large, medium, small, and along the value chains.


there must be efforts

to reduce informality and to promote formalization.

There is, by the way, something in which the ILO has worked a lot.

The growth of the formal economy will be a big boost to productivity growth

because the formal economy has higher productivity than the informal one.


Latin America has to work on the innovation systems,

on the startup ecosystems,

increasing investments in research and development,

there is a whole area here where there are very clear indicators

that we are lagging, we're behind, and there is a lot to do.

A lot has been done by the way, but we have to scale up more

and force the whole issue of structural change

is something that must be promoted and accelerated.

Small economies can make a huge difference

in their dynamic processes of restructural change by relying,

for instance, on foreign direct investments.

Examples of successful cases are Costa Rica,

Uruguay, Dominican Republic, Panama,

even Mexico, which is not really a small economy,

but it has attracted a huge amount of foreign direct investment

because of its proximity to the US

and the free trade agreement with the US and Canada.

Foreign direct investment is only one channel.

The broader point here is that the countries should bet

and should work on the growth of new dynamic sectors

that change their production and employment structures

towards higher productivity and better jobs.

The problem in Latin America

is that structural change has been perverse to a certain extent

because a lot of these change

has been from agriculture or even some deindustrialization

that goes into the informal sector.

Instead of a virtuous process of going into higher productivity,

better wage sectors that pay better wages and allow standards of living,

there has been this perverse-- and the final point is

nothing of the above will happen

without a modern, high-quality educational and vocational training system.

-What you said there about skills and what you said earlier about innovation

leads me neatly into the issue of technology

which is also laced throughout the WESO trends report.

Technology is often portrayed as

one of the answers to the productivity problem,

although in addition to improving productivity,

it can also destroy jobs.

Let me ask both of you,

to what extent do you see this as the answer

to some of Latin America's problems?

-I think we need to distinguish here maybe

a little bit advanced economies and the emerging and developing economies,

which we have in Latin America.

In the advanced economies, actually, the main question is to

what extent the new digital technologies

will be able to actually deliver the productivity growth

that societies want and that societies need.

It's an open question at the moment,

and there are different opinions about that

because as of today,

we haven't seen the big waves of automation,

and we haven't seen the big waves of productivity growth through automation

delivered through the digital economies.

I think you can, of course, ask the question

and I think José Manuel will say something about that,

of the role of technology also in emerging and in developing economies,

but I would say that one needs to look more at--

or first at the issues that José Manuel already raised,

which is, in particular, the role of institutions, formality, informality.

If you have well-functioning institutions, this provides the environment

for enterprises to make long-term decisions.

It gives planning stability to invest into capital

and to invest into people.

In my view, the investment into people is even more important

than the investment in technology because, in the end,

it's people, well-educated people that have the ideas.

It's people who know how to use technology.

It's people that have new ideas,

how to use technologies in different ways, et cetera.

In my opinion, it's the people who are the key

for advance and for developing and emerging economies;

investment in people,

giving them access to resources and to education.

From this, I think we can expect the best results

on future productivity growth.

-José Manuel, I'd like to know how you think

technology might play out in Latin America,

and in particular, whether there's a danger

that it might actually increase inequality between those areas or countries

that have the ability and the systems to implement it

and those which simply don't and might be left behind.

Is it going to level things up and increase productivity,

or is it going to have the opposite effect?

-Well, that is the million dollar question actually, [chuckles]

and it's a very important question because,

on the one hand, technology is an enormous opportunity.

There's no doubt that the digital revolution,

and of course, other revolutions in other areas,

the bio that is giving a guide

to the whole bio-economy in terms of energy transition,

all sorts of things.

In fact, the picture is mixed in Latin America.

There has been quite a lot of progress, particularly in digital technologies.

With the COVID crisis, as in the whole world,

things like electronic commerce, banking, business services,

digital government, all that has had a big jump,

but the problem is that the progress has not been as large

as it is possible, desirable, and necessary.

For example, and here we go to the inequalities,

the numbers of internet users have increased,

but there are large connectivity gaps,

particularly in terms of the broadband internet.

The use of cellular phones is almost universal,

but for many of the useful applications in education, health, et cetera,

it's necessary to have computers and tablets,

and the penetration,

ownership of tablets and computers is a unique role,

and very low among the poorer segments of the population.

Then you have the digitalization of large enterprises,

which is almost at the level of the developed countries,

and then this demand high skilled workers and everything

that Daniel was correctly pointing out,

but this is not the case for the majority of the small and medium-sized enterprises,

and much less for the micro-enterprises

that employ workers with much lower level of skills,

including digital skills.

The digital transformation agenda is pretty clear

for the region as a whole and for countries,

but I think there are a lot of governance and regulatory issues

that have to be-- and of course, financial issues,

to mobilize the necessary resources.

-In the current economic situation,

there is a lot of focus on productivity

and people saying, "This is what we have to get up.

This is what we have to tackle,"

but productivity doesn't measure everything, does it?

It doesn't, for example, measure the state of workers' rights,

or the state of equality,

or how a country is dealing with discrimination.

Do you think there's any kind of danger that

we might get too obsessed with this one particular metric,

and move away from the broader picture of decent work and social justice?

-I mean, that's a very good point, we should be clear about that,

that productivity-- basically, it's an efficiency measure.

It doesn't say anything about distribution,

it doesn't say anything about workers' rights, et cetera.

However, without productivity, there's not much you can do.

You don't have space to distribute anything,

you don't have much space to increase wages, et cetera

if you do not have the productivity gains.

I think you need to do both at the same time,

you need to make sure that you have the productivity gains,

but then, of course, also that they are distributed fairly

and that everybody gets his or her share in the productivity gains,

but I don't think we can have justice without productivity.

-Yes, I agree with what Daniel just said,

but I perhaps put it in these terms.

I mean, we have to recognize that without growth of productivity,

prosperity is not sustainable.

Good job creation is not sustainable.

Social policies and the welfare states are not sustainable,

social mobility is not possible, or it will be very slow,

and then all this means that social pacts are at risk

because you get inequalities and you get a lack of social mobility

and the poverty rates will not diminish.

While it is true that you have specific areas of policy,

which are very important, and human rights and reduced poverty,

and the education system, et cetera,

the fact is, and this is the tragedy,

this is the problem we're talking about in Latin America,

that if we're stuck 30, 40 years with low productivity growth,

everything becomes much more difficult to achieve,

it's much more difficult to create formal jobs,

and good jobs, decent work.

It is much more difficult to finance the social programmes

that societies need.

We need to do several things at the same time,

but what we are missing in Latin America, it's a growth agenda, a clear--

which includes productivity, it's not only that,

but instead of growing like

in the last decade at 0.9% on average,

again, I go to that, 1% on average,

we were growing at 4% or 5%,

it would be much easier to work on the rest of all the agenda.

There would be more fiscal space, more fiscal resources for investments,

et cetera.

This is why the productivity and growth agendas are so crucial.

-Gentlemen, a fascinating topic and obviously a very complex one,

but unfortunately, that's all we have time for today.

My thanks to both of you.

My guests were José Manuel Salazar, who is Executive Secretary of ECLAC,

and Daniel Samaan, who is Senior economist at the ILO.

Thanks very much to you all for listening.

Please join us again soon for another Future Of Work podcast.