Manufacturing Productivity Weakens across Many Advanced Economies

Unit Labor Costs Up Worldwide, Partly Mitigated by Stronger U.S. Dollar

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Dec 17, 2013, 10:00 ET

NEW YORK, Dec. 17, 2013 /PRNewswire/ -- Manufacturing productivity performance weakened across countries in North America, Europe, and Asia, based on estimates prepared by The Conference Board International Labor Comparisons (ILC) program for 2012, the latest year for which data is available.

Productivity in manufacturing—measured as the ratio of real output to total hours worked—declined substantially from their 2000s averages in the Czech Republic, Finland, South Korea, Sweden, and Taiwan. Overall, productivity was down in 12 of the 19 economies compared. Spain, Denmark, and the United States led the seven countries with improved manufacturing productivity in 2012 over 2011.

"Except for Spain, manufacturing productivity declined across all Euro Area countries compared," said Elizabeth Crofoot, Senior Economist with the International Labor Comparisons program at The Conference Board. "However, the troubled European economies were not alone. In almost half the countries, except for the 2008/2009 global financial and economic crisis, 2012 manufacturing productivity growth was the lowest seen since the 1980s or earlier."

Meanwhile, manufacturing unit labor costs (ULC)—the ratio of total labor compensation to real output—rose in national currency terms in 16 of the 19 countries. At the same time, the U.S. dollar appreciated against national currencies in 15 of the 19 countries included. When expressed in dollar terms, ULC increased in only nine countries rather than 16. Using this dollar-based data, nearly all Euro Area countries compared saw larger declines in unit labor costs than the U.S., meaning these countries increased their competitive edge against U.S. manufacturing. On the other hand, U.S. dollar denominated unit labor costs rose across all Asian economies compared, making manufacturing in these countries less competitive.

"As production in Asia becomes more costly," explained Crofoot, "manufacturers will place more weight on unit labor costs when making site selection decisions."

"These new estimates add significantly to the recent debate about the possibility of long secular decline in advanced economies," said Bart van Ark, The Conference Board Chief Economist. "Productivity and unit labor cost measures will need to accelerate from their current low levels to avoid this scenario."

About International Labor Comparisons (ILC)
International Comparisons of Manufacturing Productivity and Unit Labor Costs Trends will be published annually by The Conference Board.

Productivity is calculated as real output (manufacturing value added) divided by total hours worked in manufacturing. Increased productivity indicates a more efficient workforce. Unit Labor Costs in National Currency Units are calculated as total compensation (in current prices) divided by real output (in constant prices, that is, adjusted for increases in output prices) in manufacturing. It measures the cost of labor input required to produce one unit of output. Unit Labor Costs in U.S. Dollars are unit labor costs in national currency units with labor compensation converted to U.S. dollars using currency exchange rates. This measure is used to compare manufacturing competitiveness across countries.

The data is published as part of The Conference Board International Labor Comparisons program. Formerly a division of the U.S. Bureau of Labor Statistics, ILC is dedicated to producing economic indicators that optimize research, comparison, and planning in a global context.

For more information about The Conference Board ILC program:
www.conference-board.org/ilcprogram

For the associated report, tables, and technical notes, see International Comparisons of Manufacturing Productivity and Unit Labor Costs Trends.

About The Conference Board
The Conference Board is an independent business membership and research association working in the public interest. Our mission is unique: To provide the world's leading organizations with the practical knowledge they need to improve their performance and better serve society. The Conference Board is a non-advocacy, not-for-profit entity holding 501 (c) (3) tax-exempt status in the United States. www.conference-board.org.

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