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Does a declining unemployment rate lead to faster productivity gains?
When a country’s unemployment rate returns to its structural unemployment rate, its growth returns to the lower level of its potential growth. To stop growth from falling, the decline in unemployment must lead to higher productivity gains, as companies have to become more efficient when the labour market tightens to avoid forgoing growth (this question is being raised at present in the United States, the euro zone, Japan and the United Kingdom). This leads us to examine the correlation between the unemployment rate and productivity gains in these countries, in particular when the unemployment rate becomes low. We find that the most common mechanism (13 out of 16 cases) is an absence of any increase in productivity gains at the end of expansion periods. The exception of the United States and the United Kingdom in the late 1990s can be linked to the expansion of the new technologies sector during this period.
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Natixis
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Patrick Artus
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