Higher productivity growth for better and more sustainable economic development after the Covid-19 crisis

The outbreak of the coronavirus epidemic has led to a slump in economic output in many countries around the world. We do not yet know how long this pandemic and its health, social and economic consequences will last. In order to at least overcome the economic crisis, productivity gains – especially in service sectors – are important. This means that productivity should not be increased through more intensive work and more stress, but through technological, organizational or other means.

Over the past thirty years, labor productivity growth has slowed in many developed and other economies. Up until the 1980s, annual growth in many places was 3 or more percent. After that, productivity gains have steadily decreased. A similar development is observed in other countries in Europe and in North America. Labor productivity has been particularly weak since the onset of the financial crisis.

These small increases in labor productivity are paradoxical. Because at the same time there is an accelerated technological change that influences our everyday life and that should make our work more productive. Innovations are extremely important. One problem, however, is that innovations are currently only slowly penetrating the economy. Knowledge-intensive service and industrial sectors (such as the pharmaceutical industry or industries in the field of information and communication technology) have recorded high productivity growth. Other sectors have significantly lower productivity gains. In recent years there has been little diffusion of technological progress from highly innovative companies to the rest of the economy. Various research papers show that the productivity gap has opened between top companies in knowledge-intensive industries and the rest of the companies. Innovations are always more expensive and penetrate the economy more slowly.

Why does the rapid technological change currently not lead to higher productivity growth? One possible explanation is that new technologies are associated with significant changes for society and the economy. For example, the increasing use of artificial intelligence in the labor market is causing both winners and losers and has probably increased inequality in recent years. A society needs time to find out how new technologies can be used in such a way that they improve well-being and economic development and minimize any negative effects and risks. However, this also means that the possibilities of new technologies are initially being implemented only slowly or are being used for activities that prove to be of little use for society or the economy as a whole. This applies in particular to socially and economically crucial service sectors such as the finance, education and health sectors. In these important sectors, productivity development has mostly been slow in recent years. These sectors fulfill important social functions and are central to the sustainable development of society. Widespread access to health services, the education system and financial services promote equal opportunities and reduce inequality. These sectors are also responsible for a large proportion of the overall economic value added. They also perform catalytic functions: good educational, financial and health systems can improve development in all economic sectors, since almost all people and companies use the services of these sectors. Higher productivity growth would mean less work and improve the quality of these services.

It is often emphasized that people have to adapt increasingly to technological progress. Keywords include lifelong learning, creativity or digital skills. Investments in education and training are extremely important, but not a panacea. A lot has been invested in education and training in recent years. Nevertheless, productivity advances on a broad level have failed to materialize. In addition, the time we use for training and further education cannot be extended indefinitely. Productivity advances on a broad level should therefore only occur if new technologies – be it software, 3D printers or other innovations – complement existing professional skills better and simplify work even more. This applies in particular to services.

Innovations undoubtedly have the potential not only to make our lives more pleasant and sustainable, but also to increase the productivity of our work. If you believe the futurologists, new technologies such as robotics, nanotechnology, 3D printers or the Internet of Things will merge more and more. It is important that new technologies complement people’s existing skills better and that productivity not only increases in innovative sectors and regions. These aspects must play a greater role in the public debate. Sustained productivity increases across the board can ensure social cohesion and secure our prosperity.

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U.S. Economy: Only gradual recovery in the second half of 2020 after dramatic slump in economic activity

The Covid-19 pandemic and measures to curb it have led to a dramatic slump in economic performance in the United States. After the U.S. economy shrank by 4.8 percent annually in the first quarter of the current year, the slump in economic performance will be much more pronounced in the current second quarter. This is also noticeable on the job market. More than 35 million employees have lost their jobs since mid-March; the unemployment rate has increased significantly in the course of these developments (officially 14.7 percent in April) and is likely to rise temporarily to around 20 percent. The U.S. economy is likely to recover and grow in the second half of the year; however, the decline in growth from the first half of the year will probably not be offset until 2022. Obviously, such forecasts are associated with a high degree of uncertainty. For instance, there is the risk of a second wave of the pandemic and global tensions could increase – especially between the United States and China.

The U.S. government’s extensive fiscal measures, which total more than $ 2 trillion, are particularly supportive this year. These measures include direct transfers to low and middle income households, an increase and prolongation of unemployment benefits, and emergency loans for businesses. In addition, the U.S. Federal Reserve cut its key interest rates to almost zero percent in two steps. Extensive bond purchase programs were also decided and various measures were taken to ensure liquidity in the financial system. With the gradual recovery of the US economy, the situation on the labor market will also improve again; however, the unemployment rate is unlikely to drop below 10 percent before 2021. The trade conflict between the United States and China is likely to continue. In the so-called “Phase One” agreement signed in January 2020, a sharp increase in U.S. exports to China was agreed, which is unrealistic given the COVID-19 outbreak and the global economic crisis. The pandemic has also significantly worsened the relationship between the two governments.

All in all, the U.S. economy is expected to shrink by around 7 percent in 2020 in the baseline scenario. In a pessimistic scenario, the decline would be about 10 percent; in the optimistic scenario with a quick recovery, the decline would be 5 percent. In 2021, an economic growth rate of four to five percent may be expected. Such forecasts or scenarios are of course associated with very high levels of uncertainty.

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Unconditional financial support measures – important in a crisis, but probably not useful in the long term

The outbreak of the coronavirus pandemic has led to an increased interest in measures such as the unconditional basic income. So far, this concept has been discussed mainly against the background of technological change and a possible greater polarization on the job market. Unconditional financial support measures are indeed an important policy instrument at present for combating the economic consequences of the pandemic. In the longer term, however, it is important for a society to create sufficient and adequately paid jobs and hopefully not need an unconditional basic income. Technological change is not only exogenous, but can also be shaped and serve people.

Variants of the unconditional basic income are increasingly being discussed against the backdrop of the Covid-19 outbreak and the associated economic crisis. The reasons for this are obvious. When consumption collapses and many other economic policy measures only have a delayed effect or – as in the case of monetary policy – reach their limits, unconditional or unconditional payments to households are a suitable means of distributing financial aid quickly and helping people and the economy.

In the longer term, it is less clear whether unconditional payments are a good approach to cushioning structural changes in the economy and the job market. It is clear that the process of automation and digitization is advancing at a rapid pace; the pandemic may well accelerate it again. In the public debate, both utopian visions of a future without work and gloomy visions of the future are being drawn. It is often argued that an unconditional basic income should be introduced as a consequence of the threat of mass unemployment – i.e. a fixed amount that is the same for everyone and that all adult individuals receive without conditions or control. But is mass unemployment threatening at all? And is an unconditional basic income a suitable means of combating it?

All in all, the available studies and data indicate that the current technological change has so far brought surprisingly few benefits to many employees. Productivity and average real wages have increased only slightly in recent years by historical standards. However, mass unemployment – caused by technological change – is not yet emerging. Technological upheavals often lead to new occupations and – at least in the past – more jobs have been created than destroyed in the long term. However, we must bear in mind that this may look different in the future. The characteristics of digitization – such as the processing and global exchange of huge amounts of data or automation – are different from the technological upheavals of the past. However, especially in technologically advanced countries, at least until the outbreak of the coronavirus pandemic, the unemployment rate was low and there was a shortage of skilled workers in many areas. However, the current technological change could lead to greater polarization in the labor market and higher income inequality. We have been seeing the first signs of this for some years now. In several countries, some people are benefiting strongly from technological change, while others have to take low-paid jobs.

However, it is questionable whether we need such drastic alternatives to the current social systems as the unconditional basic income. As there is no sign of mass unemployment at present, an unconditional basic income would be too little targeted; everyone would receive the basic income, regardless of whether they needed it. One advantage of the unconditional basic income, however, is that it takes account of the increased individualisation of living conditions. Many people, for example, would like to be more flexible in their transition to retirement and would like to be able to decide more freely on the right balance between family and career. In a constantly changing world, people also need to be able to continually retrain and further educate themselves. Weakened and time-limited variants of a basic income could therefore make sense – for example, a kind of income from time off. Such variants would give every individual the opportunity to finance training and further education, childcare or the care of relatives to a certain extent in an unbureaucratic way. With such models, the financial resources that each person would have at his or her unconditional disposal in life would be considerably less than with an unconditional basic income. Above a certain amount, the continued payment of such a time-off income could be made subject to conditions and proof.

Whether such a time-out income, an unconditional basic income or simply a slight modification of the existing systems is the better solution depends largely on how technological change will affect our life and work in the coming years. It is up to science and society to do more research and experiment with different types of basic income or time-off income. This would provide our societies with more experience and facts to help them make decisions about the future of work and social security systems.

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What is the future of work after Covid-19? Some preliminary and speculative thoughts

Since the coronavirus reached us, it has become clear which work must be carried out in the workplace and which activities can be carried out anywhere thanks to new technologies. It will be interesting to see how these developments influence the future of work and wages.

The global outbreak of the coronavirus is first and foremost a major threat to many human lives and is pushing the health care system and health and care personnel in many countries to the limits of their capacity. Measures to contain the pandemic have led to major changes in many areas of our daily lives. Personal contact with other people – especially if they belong to a risk group – no longer takes place. Work should now be done from home if possible.

However, many employees in the health care system, in the production and distribution of everyday goods, in public transport and many other areas still have to appear physically at work. It is quite possible that these people can expect higher wages compared to other employees who now work from home. However, we will probably see rapid technological change in the coming years, at least in some of these areas: in the medical sector, for example, the current trend could continue and robots or software applications could take over some of the work or make work easier. But, for instance, the trend towards automation could also continue in supermarkets. Particularly against the background of a frequently lamented shortage of skilled workers in the health sector, automation need not necessarily lead to higher unemployment, but it is not excluded that it will have a dampening effect on wages. But even with increasing automation, the people who work as doctors or nurses will undoubtedly still be very important. Especially the current coronavirus outbreak shows us that a well organized health care system with motivated and attractively paid workers is crucial.

The future of work also concerns the many people who are currently working from home. In the long term, these activities, which are often services, are also central to the functioning of our society and economy. Especially in an exceptional situation, it is important, for example, that banks and insurance companies, educational institutions or public administration function as well as possible. Technological change is currently making it easier for many of the activities in these areas to continue to function and to be carried out by working from home. Modern technology is thus a great help in cushioning the negative social and economic effects of a pandemic. In this context, however, a number of companies or administrations that have so far maintained a strong culture of presence are now realising that this is at least partly superfluous. Of course, personal contact will remain important in the future, but a declining, but still frequently encountered culture, which links physical presence too strongly with performance, is being held up in the mirror by current events.

It is difficult to assess whether in the longer term the already existing – but sometimes still too slow – trend towards more flexible forms of work will actually be noticeably strengthened by this pandemic. Certainly, the current message is important: employees are not heroes if they come to work in poor health but those who – if possible – reliably do their work at home. However, many people are likely to experience home office in a negative context at present – for example, because they rarely meet family and friends or have to look after children while working at home. Many would probably also be happy if they could better separate work and leisure time from each other and go back to work. The trend towards further flexibilisation of work in services will almost certainly continue one way or another; technological and social developments are too strong. At the same time, however, the question arises as to whether activities that can be performed in the home office will be increasingly associated with a loss of pay compared with those activities where personal presence is compulsory.

The long-term impact of current developments against the background of the coronavirus outbreak remains speculative for the time being. Not everything will change. But I do believe that the pace of change will accelerate.

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Higher productivity growth for better and more sustainable economic development after the Covid-19 crisis

The outbreak of the coronavirus epidemic has led to a slump in economic output in many countries around the world. We do not yet know how long this pandemic and its health, social and economic consequences will last. In order to at least overcome the economic crisis, productivity gains – especially in service sectors – are important. This means that productivity should not be increased through more intensive work and more stress, but through technological, organizational or other means.

Over the past thirty years, labor productivity growth has slowed in many developed and other economies. Up until the 1980s, annual growth in many places was 3 or more percent. After that, productivity gains have steadily decreased. A similar development is observed in other countries in Europe and in North America. Labor productivity has been particularly weak since the onset of the financial crisis.

These small increases in labor productivity are paradoxical. Because at the same time there is an accelerated technological change that influences our everyday life and that should make our work more productive. Innovations are extremely important. One problem, however, is that innovations are currently only slowly penetrating the economy. Knowledge-intensive service and industrial sectors (such as the pharmaceutical industry or industries in the field of information and communication technology) have recorded high productivity growth. Other sectors have significantly lower productivity gains. In recent years there has been little diffusion of technological progress from highly innovative companies to the rest of the economy. Various research papers show that the productivity gap has opened between top companies in knowledge-intensive industries and the rest of the companies. Innovations are always more expensive and penetrate the economy more slowly.

Why does the rapid technological change currently not lead to higher productivity growth? One possible explanation is that new technologies are associated with significant changes for society and the economy. For example, the increasing use of artificial intelligence in the labor market is causing both winners and losers and has probably increased inequality in recent years. A society needs time to find out how new technologies can be used in such a way that they improve well-being and economic development and minimize any negative effects and risks. However, this also means that the possibilities of new technologies are initially being implemented only slowly or are being used for activities that prove to be of little use for society or the economy as a whole. This applies in particular to socially and economically crucial service sectors such as the finance, education and health sectors. In these important sectors, productivity development has mostly been slow in recent years. These sectors fulfill important social functions and are central to the sustainable development of society. Widespread access to health services, the education system and financial services promote equal opportunities and reduce inequality. These sectors are also responsible for a large proportion of the overall economic value added. They also perform catalytic functions: good educational, financial and health systems can improve development in all economic sectors, since almost all people and companies use the services of these sectors. Higher productivity growth would mean less work and improve the quality of these services.

It is often emphasized that people have to adapt increasingly to technological progress. Keywords include lifelong learning, creativity or digital skills. Investments in education and training are extremely important, but not a panacea. A lot has been invested in education and training in recent years. Nevertheless, productivity advances on a broad level have failed to materialize. In addition, the time we use for training and further education cannot be extended indefinitely. Productivity advances on a broad level should therefore only occur if new technologies – be it software, 3D printers or other innovations – complement existing professional skills better and simplify work even more. This applies in particular to services.

Innovations undoubtedly have the potential not only to make our lives more pleasant and sustainable, but also to increase the productivity of our work. If you believe the futurologists, new technologies such as robotics, nanotechnology, 3D printers or the Internet of Things will merge more and more. It is important that new technologies complement people’s existing skills better and that productivity not only increases in innovative sectors and regions. These aspects must play a greater role in the public debate. Sustained productivity increases across the board can ensure social cohesion and secure our prosperity.

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A very brief overview on the causes of the US-China trade conflict

Current developments against the backdrop of the coronavirus pandemic suggest that the trade conflict between the United States and China will continue. The conflict has a longer history. I think that there are three main causes for the trade conflict between the United States and China (the so-called “Phase 1” agreement signed in January 2020 brought some temporary relief, but I fear that the conflict will get more severe again in the coming months): (1) political-economic motives, (2) dissatisfaction with the World Trade Organization (WTO), (3) and reasons of political power.

First, the political-economic perspective is primarily about the public perception that many jobs – especially in industry – have been relocated from the USA to China. Scientific studies show that a significant part of the fall in employment in the American industrial sector could actually be related to China’s accession to the WTO in 2001, which has led to increasing economic ties between the United States and China.(1) However, it is unclear whether, as a result of globalization, jobs would not have been transferred abroad even without the integration of China into the world economy, for example to Mexico or countries in Southeast Asia. Many of the US regions affected by this job loss are located in states that belong to the so-called “swing states” and play a crucial role in presidential elections. Thus, the current trade conflict could give voters in these regions the feeling that something is being done for them. In contrast, the economic benefits of globalization – such as low prices on many consumer goods or newly created jobs in other sectors – play a minor role in the public debate. Part of the political-economic perspective is also the high trade deficit that the United States has against China. While this deficit plays a major role politically, it is only of limited economic significance from an economic point of view – especially if the trade deficit is derived from gross trade and not from added value. Since trade in intermediate goods has increased significantly over time, the bilateral trade balances are typically overestimated; in the case of trade between the United States and China potentially by over 20%.

Second, the United States is unhappy with the WTO’s policies because, according to U.S. perceptions, the Chinese state is giving unfair advantages to domestic companies to succeed in international competition.(2) The focus of criticism is the Chinese economic model, in which state and private companies are often closely intertwined with the state. This system makes it difficult to identify subsidies and other state aids and to check whether they are compatible with WTO rules. The US government also accuses China of forcing foreign investors to hand over corporate technology. These demands are often disguised, which makes it difficult to identify impermissible practices. In the United States’ view, the WTO’s rules and dispute settlement bodies are unsuitable for identifying any illegal measures taken by China and for enforcing their termination. The special tariffs that have been imposed since 2018 are a sign that the United States now wants to resolve issues with China through bilateral negotiations.

Third, there are also political reasons for the current trade conflict. China has become a serious competitor to the United States in important knowledge-intensive areas, such as artificial intelligence.(3) This is exemplified by the rise of the technology group Huawei. However, the balance of power might continue to change: China wants to take on technological leadership in the field of artificial intelligence, but also in other technologies, by 2030. This is not only economically significant. Advances in knowledge-intensive technologies are also important for military purposes. China’s development in important technologies is to be slowed down according to the will of the US government.

As I tried to briefly summarize, the causes of the current trade conflict between the United States and China are complex and have accumulated in recent years. The previous American governments had primarily pursued the approach of concluding multilateral free trade agreements without the involvement of China – such as in particular the Transpacific Partnership Agreement (TPP) – to set new rules, for example in the areas of state aid and investment protection, which were aimed at serving as a model for other free trade agreements and should, through the further development of multilateral regulations, bring China to a gradual change in its policies.

This approach has not been pursued since Donald Trump’s election as the new President of the United States – so far there has been no accession to the TPP. The areas of conflict are now discussed through bilateral negotiations between the United States and China. The current American government does not consider multilateral negotiations or dispute settlement procedures, for example within the framework of the WTO, to be suitable for a successful outcome of the conflict from the US perspective.

The nature of the dispute has now become much more confrontational. This is not only due to the negotiating style of the American president, but is also largely determined by the type of conflict, which goes beyond trade policy issues and is increasingly linked to security and power policy considerations. The progress so far suggests that there are two camps with different goals within the US government and advisory bodies.(4) One group is likely to see the special tariffs collected as a way to exert high pressure on the Chinese government and to persuade the Chinese government to make extensive concessions on issues such as investment protection or state aid. Another camp is pursuing the goal of decoupling the American economy from the Chinese economy, since China is seen as an economic and political rival. The American president does not yet seem to have clearly defined himself – at least in public – on the position of a camp. While, mainly in August 2019, some statements by the American president surrounding the escalation of the trade conflict could be interpreted as aiming to largely unbundle the two economies, other statements made since then are less confrontational. The so-called “Phase 1” agreement made in January 2020 also suggests that the US government has not yet given up on a negotiated settlement, although the scope of the agreement is limited.

(1) See, for instance: Acemoglu, D., D. Autor, D. Dorn, G. Hanson and B. Price (2016), “Import Competition and the Great US Employment Sag of the 2000s”, Journal of Labor Economics 34(S1): S. 141-S198; Autor, D., D. Dorn and G. Hanson (2016), “The China Shock: Learning from Labor Market Adjustment to Large Changes in Trade,” Annual Review of Economics 2016(8): 205-240; Pierce, J. and P. Schott (2016), “The Surprisingly Swift Decline of U.S. Manufacturing Employment,” American Economic Review 106(7): 1632-1662; Feenstra, R., H. Ma and Y. Xu (2017), “US Exports and Employment”, NBER Working Paper No. 24056; Feenstra, R. and A. Sasahara (2017), “The ‘China Shock’, Exports and U.S. Employment: A Global Input-Output Analysis”, NBER Working Paper No. 24022.

(2) Office of the United States Trade Representative (2018): Section 301 Report into China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation. Bown, C. (2019): “The 2018 US-China Trade Conflict After 40 Years of Special Protection”, Working Paper 19-7, Peterson Institute for International Economics.

(3)  Fischer, S.-C. (2018): Künstliche Intelligenz: Chinas Hightech-Ambitionen, CSS Analysen zur Sicherheitspolitik Nr. 20, Center for Security Studies (CSS), ETH Zürich.

(4) See, for instance: Zoellick, R. (2019): “Donald Trump’s impulsive approach to China makes US vulnerable”, Financial Times, 26. June 2019.

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South African economy: Gradual, but rather slow recovery expected after the severe recession caused by Covid-19

The Covid-19 pandemic and measures to curb it lead to a dramatic slump in economic performance also in South Africa. The economic contraction will be especially pronounced in the current second quarter. This will also be noticeable on the job market. The South African economy is likely to recover and grow in the second half of the year; however, the decline in growth from the first half of the year will probably not be offset until 2022. Obviously, such forecasts are associated with a high degree of uncertainty. For instance, there is the risk of a second wave of the pandemic and global tensions could increase creating negative spillover effects for the South African economy.

I do not publish a precise economic forecast for the South African economy at the moment because of the very high uncertainties surrounding any assessment and forecast. For 2020, it may be reasonable at the moment to expect a negative growth rate in the range of minus 10 to minus 5 percent. In 2021, there will hopefully be a gradual recovery, which may be expected to result in positive growth rates ranging from 2 to 6 percent.

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U.S. Economy: Only gradual recovery in the second half of 2020 after dramatic slump in economic activity

The Covid-19 pandemic and measures to curb it have led to a dramatic slump in economic performance in the United States. After the U.S. economy shrank by 4.8 percent annually in the first quarter of the current year, the slump in economic performance will be much more pronounced in the current second quarter. This is also noticeable on the job market. More than 30 million employees have lost their jobs since mid-March; the unemployment rate has increased significantly in the course of these developments (officially 14.7 percent in April) and is likely to rise temporarily to more than 20 percent.

The U.S. economy is likely to recover and grow in the second half of the year; however, the decline in growth from the first half of the year will probably not be offset until 2022. Obviously, such forecasts are associated with a high degree of uncertainty. For instance, there is the risk of a second wave of the pandemic and global tensions could increase. The U.S. government’s extensive fiscal measures, which total more than $ 2 trillion, are particularly supportive this year. These measures include direct transfers to low and middle income households, an increase and prolongation of unemployment benefits, and emergency loans for businesses. In addition, the U.S. Federal Reserve cut its key interest rates to almost zero percent in two steps. Extensive bond purchase programs were also decided and various measures were taken to ensure liquidity in the financial system.

With the gradual recovery of the US economy, the situation on the labor market will also improve again; however, the unemployment rate is unlikely to drop below 10 percent until 2021. The trade conflict between the United States and China is likely to continue. In January, the so-called “Phase One” agreement agreed a sharp increase in U.S. exports to China, which is unrealistic given the COVID-19 outbreak and the global economic crisis. The pandemic has also significantly worsened the relationship between the two governments.

All in all, the U.S. economy is expected to shrink by around 8 percent in 2020 in my baseline scenario. In a pessimistic scenario, the decline would be about 12 percent; in the optimistic scenario with a quick recovery, the decline would be 5 percent. Such forecasts or scenarios are of course associated with very high levels of uncertainty.

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What is the future of work after Covid-19? Some preliminary and speculative thoughts

Since the coronavirus reached us, it has become clear which work must be carried out in the workplace and which activities can be carried out anywhere thanks to new technologies. It will be interesting to see how these developments influence the future of work and wages.

The global outbreak of the coronavirus is first and foremost a major threat to many human lives and is pushing the health care system and health and care personnel in many countries to the limits of their capacity. Measures to contain the pandemic have led to major changes in many areas of our daily lives. Personal contact with other people – especially if they belong to a risk group – no longer takes place. Work should now be done from home if possible.

However, many employees in the health care system, in the production and distribution of everyday goods, in public transport and many other areas still have to appear physically at work. It is quite possible that these people can expect higher wages compared to other employees who now work from home. However, we will probably see rapid technological change in the coming years, at least in some of these areas: in the medical sector, for example, the current trend could continue and robots or software applications could take over some of the work or make work easier. But, for instance, the trend towards automation could also continue in supermarkets. Particularly against the background of a frequently lamented shortage of skilled workers in the health sector, automation need not necessarily lead to higher unemployment, but it is not excluded that it will have a dampening effect on wages. But even with increasing automation, the people who work as doctors or nurses will undoubtedly still be very important. Especially the current coronavirus outbreak shows us that a well organized health care system with motivated and attractively paid workers is crucial.

The future of work also concerns the many people who are currently working from home. In the long term, these activities, which are often services, are also central to the functioning of our society and economy. Especially in an exceptional situation, it is important, for example, that banks and insurance companies, educational institutions or public administration function as well as possible. Technological change is currently making it easier for many of the activities in these areas to continue to function and to be carried out by working from home. Modern technology is thus a great help in cushioning the negative social and economic effects of a pandemic. In this context, however, a number of companies or administrations that have so far maintained a strong culture of presence are now realising that this is at least partly superfluous. Of course, personal contact will remain important in the future, but a declining, but still frequently encountered culture, which links physical presence too strongly with performance, is being held up in the mirror by current events.

It is difficult to assess whether in the longer term the already existing – but sometimes still too slow – trend towards more flexible forms of work will actually be noticeably strengthened by this pandemic. Certainly, the current message is important: employees are not heroes if they come to work in poor health but those who – if possible – reliably do their work at home. However, many people are likely to experience home office in a negative context at present – for example, because they rarely meet family and friends or have to look after children while working at home. Many would probably also be happy if they could better separate work and leisure time from each other and go back to work. The trend towards further flexibilisation of work in services will almost certainly continue one way or another; technological and social developments are too strong. At the same time, however, the question arises as to whether activities that can be performed in the home office will be increasingly associated with a loss of pay compared with those activities where personal presence is compulsory.

The long-term impact of current developments against the background of the coronavirus outbreak remains speculative for the time being. Not everything will change. But I do believe that the pace of change will accelerate.

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Higher productivity growth for better and more sustainable economic development after the Covid-19 crisis

The outbreak of the coronavirus epidemic has led to a slump in economic output in many countries around the world. We do not yet know how long this pandemic and its health, social and economic consequences will last. In order to at least overcome the economic crisis, productivity gains – especially in service sectors – are important. This means that productivity should not be increased through more intensive work and more stress, but through technological, organizational or other means.

Over the past thirty years, labor productivity growth has slowed in many developed and other economies. Up until the 1980s, annual growth in many places was 3 or more percent. After that, productivity gains have steadily decreased. A similar development is observed in other countries in Europe and in North America. Labor productivity has been particularly weak since the onset of the financial crisis.

These small increases in labor productivity are paradoxical. Because at the same time there is an accelerated technological change that influences our everyday life and that should make our work more productive. Innovations are extremely important. One problem, however, is that innovations are currently only slowly penetrating the economy. Knowledge-intensive service and industrial sectors (such as the pharmaceutical industry or industries in the field of information and communication technology) have recorded high productivity growth. Other sectors have significantly lower productivity gains. In recent years there has been little diffusion of technological progress from highly innovative companies to the rest of the economy. Various research papers show that the productivity gap has opened between top companies in knowledge-intensive industries and the rest of the companies. Innovations are always more expensive and penetrate the economy more slowly.

Why does the rapid technological change currently not lead to higher productivity growth? One possible explanation is that new technologies are associated with significant changes for society and the economy. For example, the increasing use of artificial intelligence in the labor market is causing both winners and losers and has probably increased inequality in recent years. A society needs time to find out how new technologies can be used in such a way that they improve well-being and economic development and minimize any negative effects and risks. However, this also means that the possibilities of new technologies are initially being implemented only slowly or are being used for activities that prove to be of little use for society or the economy as a whole. This applies in particular to socially and economically crucial service sectors such as the finance, education and health sectors. In these important sectors, productivity development has mostly been slow in recent years. These sectors fulfill important social functions and are central to the sustainable development of society. Widespread access to health services, the education system and financial services promote equal opportunities and reduce inequality. These sectors are also responsible for a large proportion of the overall economic value added. They also perform catalytic functions: good educational, financial and health systems can improve development in all economic sectors, since almost all people and companies use the services of these sectors. Higher productivity growth would mean less work and improve the quality of these services.

It is often emphasized that people have to adapt increasingly to technological progress. Keywords include lifelong learning, creativity or digital skills. Investments in education and training are extremely important, but not a panacea. A lot has been invested in education and training in recent years. Nevertheless, productivity advances on a broad level have failed to materialize. In addition, the time we use for training and further education cannot be extended indefinitely. Productivity advances on a broad level should therefore only occur if new technologies – be it software, 3D printers or other innovations – complement existing professional skills better and simplify work even more. This applies in particular to services.

Innovations undoubtedly have the potential not only to make our lives more pleasant and sustainable, but also to increase the productivity of our work. If you believe the futurologists, new technologies such as robotics, nanotechnology, 3D printers or the Internet of Things will merge more and more. It is important that new technologies complement people’s existing skills better and that productivity not only increases in innovative sectors and regions. These aspects must play a greater role in the public debate. Sustained productivity increases across the board can ensure social cohesion and secure our prosperity.

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