1. Why is productivity growth an issue in Switzerland

Staatssekretariat für Wirtschaft
Secrétariat d‘Etat à l‘économie
Segretariato di Stato dell'economia
State Secretariat for Economic Affairs
The challenges for increasing
productivity growth in Switzerland
Aymo Brunetti
Head of the Economic Policy Directorate, SECO
16 October 2006
EVD / DFE
Folie 1
Staatssekretariat für Wirtschaft
Secrétariat d‘Etat à l‘économie
Segretariato di Stato dell'economia
State Secretariat for Economic Affairs
1.
2.
3.
4.
Why is productivity growth an issue in Switzerland ?
The productivity problem in the domestic sector
Intensity of competition as key factor
The growth policy of Swiss Government
EVD / DFE
Folie 2
Staatssekretariat für Wirtschaft
Secrétariat d‘Etat à l‘économie
Segretariato di Stato dell'economia
State Secretariat for Economic Affairs
1. Why is productivity growth an issue in Switzerland ?
Average annual growth of hourly productivity 1991-2004
4.5
4
3.5
3
in %
2.5
2
1.5
1
0.5
la
nd
Ire
d
la
n
ng
d
U
ni
te
d
Ki
N
Fi
n
om
ay
or
w
n
ed
e
lia
st
ra
Sw
d
ni
te
U
Au
St
at
es
e
nc
Fr
a
pa
n
Ja
an
y
m
G
er
Lu
xe
m
bo
ur
g
It a
ly
er
la
it z
Sw
N
et
he
r
la
nd
s
nd
0
Source: OECD
EVD / DFE
Folie 3
Staatssekretariat für Wirtschaft
Secrétariat d‘Etat à l‘économie
Segretariato di Stato dell'economia
State Secretariat for Economic Affairs
1. Why is productivity growth an issue in Switzerland?
Switzerland is losing its stellar position
180
170
Switzerland
Germany
160
Austria
USA
100 = OECD
150
140
130
120
110
100
20
04
20
02
20
00
19
98
19
96
19
94
19
92
19
90
19
88
19
86
19
84
19
82
19
80
19
78
19
76
19
74
19
72
19
70
90
GDP per capita in PPP ( OECD = 100)
EVD / DFE
Folie 4
Staatssekretariat für Wirtschaft
Secrétariat d‘Etat à l‘économie
Segretariato di Stato dell'economia
State Secretariat for Economic Affairs
1. Why is productivity growth an issue in Switzerland?
Small potential for „hours worked“
90
80
70
in %
60
50
40
30
20
Employment rate 2005
EVD / DFE
Switzerland
UK
USA
JAP
AUT
OECD
EU-15
F
I
0
Germany
10
Source: OECD 2006
Folie 5
Staatssekretariat für Wirtschaft
Secrétariat d‘Etat à l‘économie
Segretariato di Stato dell'economia
State Secretariat for Economic Affairs
1. Why is productivity growth an issue in Switzerland?
Growth effects of ageing: a scenario
2.5
2
in %
1.5
1
0.5
40
39
20
38
20
37
20
36
20
35
20
34
20
33
20
32
20
31
20
30
20
29
20
28
20
27
20
26
20
25
20
24
20
23
20
22
20
21
20
20
20
19
20
18
20
17
20
16
20
15
20
14
20
13
20
12
20
11
20
10
20
09
20
08
20
07
20
06
20
20
20
05
0
Source: SECO
EVD / DFE
Folie 6
Staatssekretariat für Wirtschaft
Secrétariat d‘Etat à l‘économie
Segretariato di Stato dell'economia
State Secretariat for Economic Affairs
2. Productivity problem in the domestic
sector
Three stylized sectors of the Swiss
economy
• Private sector open to international competition
• Private domestic sector
• Wider state sector
EVD / DFE
Folie 7
2. Productivity problem in the domestic
sector
Staatssekretariat für Wirtschaft
Secrétariat d‘Etat à l‘économie
Segretariato di Stato dell'economia
State Secretariat for Economic Affairs
Evolution and level of productivity in Switzerland
160000
Wider state sector
150000
Private domestic sectors
Private sectors open to international
competition
140000
in CHF
130000
120000
110000
100000
90000
80000
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
Source : Federal Statistical
Office
EVD / DFE
Folie 8
2. Productivity problem in the domestic
sector
Staatssekretariat für Wirtschaft
Secrétariat d‘Etat à l‘économie
Segretariato di Stato dell'economia
State Secretariat for Economic Affairs
Evolution and level of full-time employment in Switzerland
1600000
1400000
1200000
1000000
800000
600000
400000
Wider state sector
Private domestic sectors
200000
Private sectors open to international competition
0
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
Source: Federal Statistical
Office
EVD / DFE
Folie 9
Staatssekretariat für Wirtschaft
Secrétariat d‘Etat à l‘économie
Segretariato di Stato dell'economia
State Secretariat for Economic Affairs
3. Intensity of competition as key factor
Comparative price of a Big Mac in USD
(i.e. The Economist "Big Mac Index")
6
5
in USD
4
3
2
1
0
China
Japan
Australia
Canada
USA
Britain
Eurozone
Sweden
Denmark
Switzerland
Source: The Economist
EVD / DFE
Folie 10
Staatssekretariat für Wirtschaft
Secrétariat d‘Etat à l‘économie
Segretariato di Stato dell'economia
State Secretariat for Economic Affairs
3. Intensity of competition as key factor
Comparative price level for GDP in 2005
140
130
100 = EU25
120
110
100
90
or
w
ay
N
nd
er
la
S
w
itz
D
en
m
ar
k
d
la
n
Ire
S
w
ed
en
d
an
Lu
xe
m
bo
gd
Ki
n
d
U
ni
te
Fi
nl
ur
g
om
ce
Fr
an
s
er
la
nd
y
N
et
h
m
an
G
er
us
tri
a
A
um
el
gi
Ita
pa
in
S
ly
B
P
or
tu
g
al
80
Source: Eurostat
EVD / DFE
Folie 11
Staatssekretariat für Wirtschaft
Secrétariat d‘Etat à l‘économie
Segretariato di Stato dell'economia
State Secretariat for Economic Affairs
3. Intensity of competition as key factor
Possible explanation for high prices
• Quality (… but „Big Mac“)
• Income level (… but „US“)
• Regulations
• Competition
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Folie 12
Staatssekretariat für Wirtschaft
Secrétariat d‘Etat à l‘économie
Segretariato di Stato dell'economia
State Secretariat for Economic Affairs
3. Intensity of competition as key factor
Effects of competition on productivity
• Eliminates X - inefficiency
• Incentives to use best technology
=> „imitation“
• Incentives to develop better technology
=> „innovation“
EVD / DFE
Folie 13
Staatssekretariat für Wirtschaft
Secrétariat d‘Etat à l‘économie
Segretariato di Stato dell'economia
State Secretariat for Economic Affairs
3. Intensity of competition as key factor
„New economy“ - effect
• ICT has big potential for raising productivity
• But two preconditions:
- competitive pressure in product markets
- flexible labour markets
EVD / DFE
Folie 14
Staatssekretariat für Wirtschaft
Secrétariat d‘Etat à l‘économie
Segretariato di Stato dell'economia
State Secretariat for Economic Affairs
4. The growth policy of Swiss Government
Main goals of Swiss growth policy
1) Maintaining high employment
=> Keep labour market flexible
2) Increasing labour productivity
=> Increase competition in domestic
product market
EVD / DFE
Folie 15
Staatssekretariat für Wirtschaft
Secrétariat d‘Etat à l‘économie
Segretariato di Stato dell'economia
State Secretariat for Economic Affairs
4. The growth policy of Swiss Government
„Growth package“ of Government with
three main pillars
1.More competition on the domestic market
2.Stop growth of the share of Government in GDP
3.Improving efficiency of Government’s intervention
EVD / DFE
Folie 16