Labor Productivity Increases as Agriculture Abandoned

April 19, 2000

A new study shows that labor productivity is increasing most quickly in the poorest countries, because in many of those economies, a shift from "unproductive agriculture" to manufacturing is taking place. The report comes from The Conference Board, a worldwide research network in New York City.

"Labor productivity plays an important role in the growth process" of poorer countries. "However, the countries with the biggest income gains were not the countries with the fastest productivity growth. Labor productivity is rising the fastest in the poorest countries, because many of these economies are shifting from unproductive agriculture to manufacturing."

Although globalization has helped countries advance economically, the study noted, very few sustain fast growth long enough to close the income gap with richer industrialized countries.

"Globalization alone is not sufficient for developing economies to make progress toward industrial country status," says Gail D. Fosler, vice president and chief economist of The Conference Board. "What is striking is that the biggest gains in income and living standards are concentrated in countries that already have above average per capita incomes and relatively advanced levels of development. These countries benefit from globalization but they also have the domestic market and the domestic governance structure to foster growth."

The fastest growing economies are better at drawing on their workforce, increasing participation, employment and working hours, says Fosler. "All of these supplemental income sources add to the amount of discretionary income in these countries and the resulting level of market opportunity." Workers in the poorest countries have less than 20% of their income available for discretionary spending compared to almost 50% in the richest countries.

The report is included in StraightTalk, Vol. 11, No. 3, a publication of The Conference Board.