Growth of GDP per capita can in principle have two drivers: expansion in the proportion of employed persons in the population and an increase in the output achieved per worker. During the last 25 years, the second of these drivers was by far the more important one, as the decomposition in figure 8.3 reveals. In developing economies, the share of employed persons in the entire population increased on average by 0.23 per cent each year. In developed economies, where the labour force participation rate has been negatively impacted by a declining proportion of persons of working age, this growth was lower (0.19 per cent per year), while in transition economies, where new companies emerging under market conditions provided more and more opportunities to work, growth of the workforce share in the population was higher (0.35 per cent per year). In all three groups, the major part of GDP-per-capita growth can be attributed to a growth in labour productivity.
In developing economies, output per worker increased on average by 2.9 per cent each year, explaining 92 per cent of the recorded growth in GDP per capita from 1992 to 2014. In transition and developed economies this growth was lower (1.7 per cent and 1.1 per cent per year, respectively), but nevertheless accounted for around 86 per cent of total GDP growth. Disparities in economic growth between the developing, transition and developed economies can be largely accounted for by differences in labour productivity growth.
In general, changes in average labour productivity of an economy can result from two sources: technical innovations, which lead to increased efficiency of the methods applied at the existing workplaces, and a change in sectoral structures, which has the effect that some sectors, ideally the more productive ones, expand while others contract. How these two forces shape the process of development was comprehensively described for the first time by Fourastié (1963).
His three-sector model (differentiating between agriculture, manufacturing and services) uses as a starting point a pre-modern economy dominated by agriculture. Innovations lead to a gradual substitution of human labour with machines. Rising incomes result in a shift of consumer demand from agricultural to manufactured products, thereby causing an expansion of production in the manufacturing sector, a sector characterized by high value added per worker and a large potential for innovations. The growth of the manufacturing sector thereby boosts labour productivity in the economy as a whole. In a later phase, rising per-capita incomes induce a shift of consumer demand towards services, leading to a growth of the service sector. Although Fourastié’s model considers only three fairly broadly defined economic sectors, it demonstrates the importance of innovations and structural transformation for economic development in general. Promoting the emergence of highly productive sectors, particularly in manufacturing, by making use of various measures of industrial policy can therefore be seen as a promising strategy for economic development (UNCTAD, 2014).
Developing and developed economies have substantial differences in their sectoral composition or structure. These structures have been changing in different ways over the last decades. As figure 8.4 reveals, developed countries are characterized by small and shrinking agricultural and mining sectors. In 2007, only 3 per cent of employed persons worked in these sectors. The proportion of workers employed in manufacturing and utilities has also been contracting, relative to employment in services, mainly in business-related services, such as financial intermediation, insurance and renting services, but also in government and personal services, which include public administration, education, health and social work. Employment in developing economies, by contrast, is still dominated by agriculture and mining as well as by smaller manufacturing, utilities and services sectors.
|Government and personal services||Commercial services, excluding business services||Manufacturing and utilities|
|Business services||Construction||Agriculture and mining|
|Government and personal services|
|Commercial services, excluding business services|
|Manufacturing and utilities|
|Agriculture and mining|
However, considerable differences exist across continents. In Africa, the proportion of workers in agriculture and mining remained almost unchanged at around 61 per cent from 1991 to 2004, and since 2005 it has decreased only slightly. In the developing economies of America, the proportion was only 17 per cent in 2007. In the developing economies of Asia, at the beginning of the 1990s the share of workers in agriculture and mining in total employment was comparable to Africa, but 16 years later, after a strong and continuous decline, it accounts now for only 45 per cent of total employment. While in developing economies of Africa and Asia both the manufacturing, mining and services sectors grew, in American developing countries the reduction of agriculture and mining was counterbalanced by an increase in services only. All in all, the diagrams in figure 8.4 broadly reflect a relocation of manufacturing activities from developed economies to developing economies in Asia and Africa.
Structural transformation, even when examined at the level of broadly defined economic sectors as in figure 8.4, constitutes an important source of labour-productivity growth in developing economies. In the developing economies of Asia, its contribution to the observed increase in labour productivity is even larger than the contribution of developments taking place within the sectors.
In the developing economies of Africa and America, where the transition from agriculture-based to manufacturing-based economies has been less pronounced than in Asia, the relative contribution of sectoral change to labour productivity growth was also smaller. In the developed world, sectoral change even had a negative effect on labour productivity, meaning that if the sectoral composition of the workforce had remained unchanged, labour productivity would have increased by twice as much as it actually did, assuming that output per worker within the sectors had remained constant. This is mainly due to the shrinkage of the manufacturing sector, the sector in which output per worker is highest.