According to the World Bank, countries previously affected by a pandemic reduced their productivity levels by up to 9% after the crisis. Could history repeat itself, or maybe this time it will be different?
When it comes to economics, it is inevitable to mention concepts – as well known in the political field as they are unknown in practice – such as gross domestic product (GDP), inflation, unemployment, as well as others that are frequently repeated on a daily basis. Economics is a very broad science, and as such, the terminology used in the field is as varied as it is extensive. However, when we talk about economic growth as such, among the most popular concepts, along with GDP, productivity stands out.
First of all, we must understand that GDP is an indicator that is measured as a flow variable, which expresses the production generated by a certain country, during a period of time, in the same way, determined. Thus, once we know what GDP is, we must know that the ways for this magnitude to grow in relation to other periods are mainly two: first, to increase the number of active workers in relation to previous years, being able to produce these more than what was produced with smaller templates. Or, on the other hand, increase the productivity of existing employees.
“Economic growth is only possible in two ways: with increases in the labor force or with increases in productivity.”
In this context, we must know that an increase in GDP due to increases in the workforce entails additional expenses for the employer. That is to say, it generates an increase in the labor cost, since we are talking about the incorporation of more personnel, so they will have to assume the higher salary cost that this entails. However, when what is increased is productivity, what this shows is that the same people who produced a certain amount of production in previous years, for very different reasons, today produce more with the same resources. Considering these two growth paths, the choice of the optimal path, therefore, is quite simple.
However, in recent years we have witnessed how this growth path has been reduced in a large part of the world. In this sense, generating increases in productivity is an increasingly complex process, as well as more expensive. In addition, incidentally, the ways by which this increase was achieved, in light of the evolution shown by these, have lost effectiveness and efficiency; questioning, even, the very ways by which such improvement can be achieved.
While productivity in the postwar period grew by leaps and bounds, it reached its maximum expansion phase in the 1970s. With the advent of automation and mechanization, the planet experienced an economic boom where large increases were recorded in productivity since the 1930s. However, since the 1970s, indicators that measure productivity increases have remained stagnant over time. Well, it is not until the 1990s when new growths are observed in these indicators; again suffering a new slowdown from the year 2000.
Since then, technological advances, as well as other events that in normal situations should have increased productivity further, have not had as much impact as was a priori expected. In this sense, productivity growth has been stagnant, even in emerging economies (EMDEs), where it grew at a faster rate. A situation that has revealed the relevance of these advances for economic growth, as well as whether the growth paths previously established by economic theory today are sufficient to regain said dynamism.
A pretty daunting study
As can be seen in the analysis, it is enough to look at Spain, or Mexico as an example of an emerging economy, to observe what we are commenting on. In this sense, the peninsular country, for example, has had its productivity levels growing at very slow rates for more than 20 years. Something similar to what happens with Mexico, which despite increasing its productivity, for being an emerging economy, does so at a slower pace than in previous years. Coinciding with the previously mentioned dates, Spain, Mexico, like other economies, have lost that dynamism in productivity that has characterized them years ago. All this, despite living in a completely digitized era, where advances and the appearance of new technologies are constantly occurring.
“According to the World Bank, those economies that were affected by pandemic outbreaks in the past reduced their productivity levels by up to 9% over the next 3 years.”
In addition, it is striking what a study carried out by the World Bank shows, which showed the impact of situations like the one that happens to us today on the productivity levels of the different affected countries. Thus, what the study reveals is the strong impact of situations such as the current one on the productivity levels of the different countries. According to the multilateral organization, those economies that in this century were affected by pandemic outbreaks, in the same way, reduced their productivity levels by up to 9% during the following 3 years, in relation to the countries that, not having suffered pandemics, they were not affected.
For this reason, taking into account the aforementioned events, a crisis like the one that is happening to us today threatens to continue weighing down productivity that, as we said, has been stagnant for years. In addition, all this, in addition to other factors that, having to work correctly to increase productivity levels, are not working as they should. The poor results at the educational level, the weak investment flows, the “new innovations”, as well as the public stimuli, seem not to be having the desired impact.
A different crisis, a different result
In this regard, and despite what the empirical research analyzed in previous lines reflects, it is worth questioning whether this time it will be different. And it is that the divergences in the behavior experienced by the economic agents, could leave us a very different result in the current situation.
“According to the World Economic Forum (WEF), 80% of employers in the world will accelerate the digital transformation processes in their companies.”
Due to the forced paralysis of economic activity, the impossibility of acting, as well as working, under a face-to-face format accelerated the digitization processes in a large majority of companies throughout the planet. According to the World Economic Forum (WEF), a survey of companies worldwide found that 80% of employers in the world intend to accelerate the digital transformation processes in their companies . In addition, these respondents also stated that they would give their employees more opportunities to adapt to teleworking. To do this, investing and accelerating the implementation of digital tools in the daily operations of the company.
On the other hand, said survey, in the same way, shows that 50% of the surveyed employers plan to automate a large part of their production tasks, 43% of them stating that such automation will cause a reduction in the labor force; that is, it will reduce the number of employees. In this sense, the crisis that is happening to us today has accelerated a change that, for years, has been required by economies to continue increasing productivity. Changes that are expected to arrive with the pandemic, necessarily, due to the paralysis of economic activity as a result of the virus that today threatens citizens, as well as its high contagion rate.
This that we comment has been observed in the figures that telework presents in different countries of the planet. Such is the case in the United States, in which, according to the report offered by the Massachusetts Institute of Technology (MIT), approximately 50% of the population would already find themselves teleworking from their homes. On the other hand, other countries such as the United Kingdom expect to have 30% of their workforce working from home by 2021. Thus, a teleworking for which economies like Spain are also betting, which has gone from having 6% of the population working from home, to 16.4% in times of pandemic.
In short, these changes, as well as the accelerated transition process that companies have had to implement, have raised the possibility that productivity will accelerate again when the effects of the pandemic dissipate. A productivity that, with its growth, would also put an end to a rather worrying trend if it were to be repeated on this occasion.