Swiss workers much more productive in 2004

When demand increases, workers have to step up the pace Keystone

Swiss workers increased their average productivity last year by more than two per cent – but it didn’t lead to new jobs being created.

A study by forecasting and analysis centre Basel Economics (BAK) says average labour productivity per hour increased by 2.1 per cent in 2004, nearly double the annual average of 1.1 per cent for the period 1973 to 2003.

The news will be welcomed by many economists and politicians, who regularly point to Switzerland’s “productivity gap” compared with other developed nations.

BAK said the sharp increase in productivity contributed to a large extent to last year’s estimated full-year increase of 1.7 per cent in gross domestic product (GDP).

Economic growth – commonly measured as the annual increase in GDP per head – results from increases in two factors: average productivity per person per hour worked and total number of hours worked.

But while economists often argue that increased GDP eventually leads to more jobs all around, that is not necessarily the case.

Higher demand

BAK senior economist Alexis Körber told swissinfo: “2004 productivity growth was well above average.”

However, he pointed out that the estimated total number of hours worked by the Swiss population in 2004 decreased slightly – by 0.4 per cent – over the year as a whole.

In other words, Swiss companies produced more goods and services per worker per hour over the year, but without any significant increase in the number of new jobs – and arguably at the expense of those still looking for work.

And BAK adds that last year’s increased productivity is unlikely to carry forward to the first quarter of 2005.

It points out that the main factors behind the increase were not relatively lasting phenomena such as technological breakthroughs or improved working processes, but a temporary increase in market demand following the 2003 global economic slump.

That meant firms were able to step up production using spare capacity at relatively little extra cost – but now risk having to scale back down if demand tails off again due to external economic factors, such as high oil prices.

Slowdown

The last three months of 2004 already pointed in this direction – the productivity increase for the period October to December was only 0.2 per cent, in line with an unexpected drop in GDP growth for the quarter (minus 0.1 per cent).

And BAK says that trend is likely to continue in the short term.

On the one hand, Swiss economic growth is expected to remain relatively flat over the next few months – although still increasing slightly – due to declining global demand.

On the other hand, the fact that last year’s productivity increase has resulted in many Swiss firms now operating at or near full capacity means they may now have to think seriously about employing more people.

As BAK points out, the expected – though “very slow” – labour market recovery would be good news for job-hunters, but will probably mean that labour productivity drops again proportionally.

Publication of the BAK study comes one day after the Swiss National Bank (SNB) decided not to raise interest rates at its quarterly meeting – the second time in a row that it has left the cost of borrowing in Switzerland on hold.

The SNB said in its accompanying statement that it now expected annual GDP growth in 2005 of only 1.5 per cent, down slightly from its December forecast.

swissinfo, Chris Lewis

Key facts

Economic growth is measured by annual percentage increase in GDP – the total value of all final goods and services produced in a country.
Growth is largely the product of two factors: total number of hours worked per year and average productivity per worker per hour.
The two are often inversely related, at least in the short term.

In brief

The BAK study shows that average hourly productivity per worker increased by 2.1% last year – nearly twice the average in recent decades.

It says the increase was largely due to firms meeting increased demand by producing more with idle capacity.

It expects productivity growth to slow again in coming months, as global demand drops.