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Labor productivity and other adventures

Labor productivity is one of the most important indicators of a country's well-being. Let's figure out how things are with it in the world.

Photo by Birmingham Museums Trust on Unsplash
Photo by Birmingham Museums Trust on Unsplash

Labor productivity is considered one of the most important indicators of a country’s well-being. However, we don’t know so much about it, let’s try to figure out how it is calculated, and how things are with it in the world (data source: Total Economy Database).

We will find out the answer a little bit later.

Labor productivity objectively reflects the health of an economy, it is based on two indicators: the country’s GDP per capita and the proportion of the employed population. The same formula can be written in another way:

*Note: this article uses GDP data (PPP). Data source Total Economy Database
*Note: this article uses GDP data (PPP). Data source Total Economy Database

Let’s revise what GDP and GDP per capita are. GDP is the gross domestic product, which represents the total market value of all final goods and services produced in a country. GDP per capita shows how much gross domestic product is produced by one person on average (GDP / population). Both indicators are measured annually and for comparison purposes in the same currency – US dollars.

The charts show that a high GDP does not mean that GDP per capita will also be high. For example, China ranks first in terms of GDP and produces the largest number of goods and services in the world. But neither GDP per capita, nor its labor productivity are included in the TOP 10, they hold the 61st and the 78th places respectively, on the same level as Colombia and Brazil (which, by the way, are also in the TOP 10 countries for GDP):

Why is this mismatch? Firstly, China is the most populous country. When allocating 25 billion GDP per 1.4 billion people, the value is several times lower than in most countries. Secondly, people work a lot there – the percentage of the employed population in 2019 was 55.6%, which is higher than the average by 10–12%. Thirdly, there are cheap or low-tech products in China.

3 reasons for high labor productivity in the country:

  1. Low cost of the final product, but a large production volume + a low percentage of employed people. The conditions that are applicable to the Arabic countries that produce cheap oil and do not spend a lot of effort and time on it.
  2. High GDP per capita + high or average percentage of employed people. This pattern is typical for the United States and most Western European countries – the entire working-age population works and produces high-value products. Qatar became an unexpected participant in this group. Its high labor productivity is ensured not by a low percentage of employed people as in other oil-producing countries, but by a higher cost of the finished product and large volumes of its production.
  3. High GDP per capita + low percentage of employment. This situation is rare, but it is the future – there is a small proportion of the employed population which produces an expensive product.

Russia

We have looked at the leaders in the main economic indicators. Now we will find Russia in these ratings. In terms of GDP, Russia is ahead of many countries – the news and economic books tell us that. Indeed, in 2019, Russia was on the 6th place in the world GDP ranking (PPP). But it did not become a leader in labor productivity.

Let’s test your intuition again.


We have collected all the most important macroeconomic indicators on a single Dashboard.

What does the dashboard show? Since the beginning of the 1960s, labor productivity in Russia (RSFSR) had a mainly positive dynamic. After the collapse of the Soviet Union, the productivity index fell sharply in Russia and the CIS countries, and it returned to the value of 1989 only by 2005. The positive dynamic of labor productivity was brought down by the crisis of 2008, but in 2010 it began to grow again and reached its maximum in 2019 ($59,900 per capita).

Labor productivity in Russia follows all changes in GDP. Where the graph line does not coincide with the tops of the bars, the second factor (the number of employed people) affects: the bars below the graph mean that % of employed people falls, the bars above the graph show that % of the working population increases.

Russia and the world

Labor productivity in Russia has never taken a leading position in the world. It rose to its highest position in the rating during the USSR period. The best result throughout all years was the 32nd place in 1968, the worst result was the 61st place in 1997 and 1998. After that, Russia has not risen above the 48th line of the rating. In 2019 Russia was ranked 55th in the world.

It is also interesting to see the dynamics of labor productivity in Russia against the background of the world average indicator and the average for the TOP 25 countries leading in terms of GDP. Russia has never outperformed the latter indicator.

Now a few positive moments. Since 1982 Russia has exceeded the world average in terms of labor productivity. After the collapse of the Soviet Union and until 2006 it was below the average indicator again, but having caught up with it in 2007, it no longer falls below and tends to catch up with the leaders in GDP. Even the 2008 crisis did not break this positive trend.


Let’s sum up

Labor productivity is an important and interesting indicator of a country’s well-being. Watching its dynamics is as fascinating as watching the dynamics of GDP.

The first place in the rating is a relative concept. You can always choose a scale that makes the chart look positive. You can learn how to avoid data manipulation and make clear visualizations in our analytics courses. Feel free to write to me and we’ll discuss all of your questions.


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