Labour productivity higher in 2021

Labour productivity is measured as gross value added per hour worked. In the long term, productivity growth is the most important source of economic growth in advanced economies. In 2021, gross value added of the market sector rose by 6.1 percent, while the number of hours worked increased by 3.1 percent. These factors combined resulted in strong labour productivity growth (2.8 percent). The market sector comprises all industries except government, education and trade in real estate including owner-occupied dwellings. It accounted for 80 percent of total gross value added in 2021.

Positive contributions by most industries

Most industries contributed positively to the growth of labour productivity in 2021. However, contributions by agriculture, mining and quarrying, energy, water and construction and by information, communication and financial services were slightly negative.

The chart below shows the contribution of each individual industry to labour productivity growth of the market sector as a whole. The sum of these individual industry balances results in an overall growth rate of 2.8 percent for the entire market sector.

Contributions to labour productivity growth were largest in health care and manufacturing. Both industries had a minor negative shift contribution to labour productivity growth, paired with a strong labour productivity contribution within the industries themselves. When an industry is more productive on average compared to other industries, and its share in total hours worked increases, this results in a positive shift contribution. When its share in total hours worked declines, this results in a negative shift contribution. These relations are reversed for industries that are less productive on average.

Contributions to labour productivity were also positive in trade, transport and business services. Growth in these industries was almost entirely the result of strong labour productivity growth within the industries themselves. Accommodation and food services, culture and recreation and other services also contributed positively to the growth of labour productivity. Because this industry is less productive on average, and its share in total hours worked increased, there was a slight negative shift contribution effect.

Finally, a minor negative contribution to productivity growth was seen in agriculture, mining and quarrying, energy, water and construction, and in information, communication and financial services. In both cases, this was mainly the result of a negative labour productivity growth within the industries themselves.

Productivity growth mainly due to higher multi-factor productivity

Labour productivity growth in 2021 was mainly the result of a sharp increase in multi-factor productivity. Multi-factor productivity is the part of value added growth that cannot be attributed to growth in either labour or capital. In 2021, the contribution of multi-factor productivity to labour productivity growth was 2.9 percent. This figure is strongly influenced by the fact that capacity utilisation rates increased in 2021, after falling sharply in 2020. The effect of these rising rates is reflected in a strong increase in multi-factor productivity.

In addition, there was a positive contribution due to the change in labour composition (0.2 percent), but a negative contribution of capital (-0.3 percent). Despite the fact that more capital such as machinery and computers were used in the production process, labour input increased at a faster rate, resulting in negative capital deepening per hour worked. The deployment of higher qualified workers resulted in a positive effect to labour productivity growth.