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Productivity is a key source of economic growth and competitiveness. The OECD Compendium of Productivity Indicators 2015 presents a comprehensive overview of recent and longer term trends in productivity levels and growth in OECD countries. It also highlights key measurement issues faced when compiling cross-country comparable productivity indicators.

Unit labour costs (ULC) reflect total labour costs relative to a volume of output. Hence, the growth in unit labour costs is often viewed as a broad measure of (international) price competitiveness of firms within a country.

Labour productivity is a key dimension of economic performance and an essential driver of changes in living standards.

In 2009, the United Nations Statistical Commission endorsed a revised set of international standards for the compilation of national accounts: the System of National Accounts (SNA) 2008, replacing the 1993 version of the SNA. The indicators presented in this publication are based on the 2008 SNA for all OECD countries except Chile, Japan, Norway and Turkey. For Portugal, growth accounts are presented on a 1993 SNA basis whereas the labour productivity and unit labour cost indicators are presented on a 2008 SNA basis. For New Zealand, growth accounts are presented on a 2008 SNA basis whereas the labour productivity and unit labour cost indicators are presented on a 1993 SNA basis. The 2008 SNA includes a number of changes from the 1993 SNA and was adopted by most OECD countries at the end of 2014.

Sectors differ from each other with respect to their productivity growth. Such differences may relate, for instance, to the intensity with which sectors use capital and skilled labour in their production; the scope for product and process innovation and the absorption of external knowledge; the degree of product standardisation; the scope for economies of scale; and the exposure to international competition.

Productivity is commonly defined as a ratio between the volume of output and the volume of inputs. In other words, it measures how efficiently production inputs, such as labour and capital, are being used in an economy to produce a given level of output. Productivity is considered a key source of economic growth and competitiveness and, as such, internationally comparable indicators of productivity are central for assessing economic performance.

Developments in information and telecommunications technologies (ICT) combined with internationally fragmented production processes are making business services increasingly dynamic, transportable and tradable. As a result, several business sector services show characteristics similar to high-productivity manufacturing industries; they are intensive in physical, notably ICT-capital, innovative, show economies of scale, and are exposed to international competition.

Within the OECD Productivity Statistics (database) (PDB), the underlying concept for labour input is total hours actually worked by all persons engaged in production. It is instructive to consider the relationship between this concept and related measures of working time ():

Gross Domestic Product (GDP) per capita measures economic activity or income per person and is one of the core indicators of economic performance. Growth in GDP per capita can be broken down into a part which is due to growth in labour productivity (GDP per hour worked) and a part which is due to increased labour utilisation (hours worked per capita). A slowing or declining rate of labour utilisation combined with high labour productivity growth can be indicative of a greater use of capital and/or of structural shifts to higher-productivity activities.

Economic growth can be fostered either by raising the labour and capital inputs used in production, or by improving the overall efficiency with which these inputs are used together, i.e. higher multifactor productivity growth (MFP). Growth accounting involves decomposing total output growth, (GDP growth), into these three components. As such, it provides an essential tool for policy makers to identify the underlying drivers for growth.

Productivity measures how efficiently production inputs, such as labour and capital, are being used in an economy to produce a given level of output. It is considered a key source of economic growth and competitiveness and, as such, internationally comparable indicators of productivity are central for assessing economic performance.

A number of studies indicate that multifactor productivity growth (MFP) behaves cyclically, i.e. it increases in an upturn and declines in a downturn. This has sometimes been interpreted as a paradox, as MFP has traditionally been perceived as exogenous technological change, which should typically not behave cyclically.

Two key measures of capital stock exist. The first is productive capital stock, which looks at capital in its function as a provider of capital services in production. The second is gross (or net) capital stock, which captures the role of capital as a store of wealth.For more information on capital measures and their uses see OECD (2001, 2009a, 2009b) and Schreyer (2004). This annex provides supplementary information on these two measures, the approaches used to estimate them and capital measures available at the OECD.

GDP per capita levels are typically used to compare living standards across countries. Differences in GDP per capita levels across countries can arise from differences in labour productivity levels and from differences in labour utilisation (hours worked per capita). The latter can represent differences in unemployment and participation rates of the working age population, on the one hand, and working hours per employed person, on the other.

The business services sector has contributed significantly to GDP growth across OECD countries in recent decades, driven in large part by an increase in firms providing intermediate services to other firms, including in the manufacturing sector. This process of outsourcing activities previously conducted in-house has increased efficiencies, and hence, labour productivity, of both outsourcing firms as well as the specialised intermediary firms. Hence, over the long term, both factors may produce a structural shift towards intermediate services industries and a direct positive contribution of high productivity business services to productivity growth of the total economy.

Policy makers are interested in analysing the structural factors determining labour productivity growth. For instance, a declining trend of labour productivity growth may be driven by declining investment in capital relative to hours worked (capital deepening). Or it could be indicative of factors that hamper growth in multifactor productivity (MFP), such as low innovative activity, skills mismatches or inefficiencies due to barriers to competition. To shed light on these structural factors, one can decompose the time series of labour productivity growth as well as its drivers, i.e. the contribution of capital deepening and MFP, into a trend and a cyclical component.

GDP growth in the OECD area is beginning to gradually strengthen, years after the start of the global financial crisis. Nevertheless, the pace has varied across countries and a sustainable recovery does not appear to have yet been established, with several OECD countries facing the challenge of slower trend growth. A good understanding of the role and the drivers of productivity growth is thus crucial to strengthening the recovery and improving growth and living standards in the longer term. The OECD Compendium of Productivity Indicators provides the ingredients for this by examining both longer term trends of productivity and how the crisis has affected patterns of productivity growth and its components across countries.

Multifactor productivity (MFP) reflects the overall efficiency with which labour and capital inputs are used together in the production process. Labour productivity growth represents a higher level of output for every hour worked. This can be achieved if more capital, such as machinery or software or better vintages of it (capital deepening) is used in production, or by improving the overall efficiency with which labour and capital are used together, i.e. higher MFP.

Gross Domestic Product (GDP) is the standard measure of the value of final goods and services produced by a country during a period minus the value of imports. GDP per capita is a core indicator of economic performance and commonly used as a broad measure of average living standards or economic well-being.

The OECD Productivity Statistics (database) (PDB) contains a consistent set of productivity measures at the total economy and at the industry levels. This annex provides detailed information on the measures included in the database.