Productivity as a source of economic growth - current situation and prospects in the Republic of North Macedonia
Date Issued
2022
Author(s)
Djambaska, Elizabeta; Lozanoska, Aleksandra; Piperkova, Irina
Abstract
Today’s world situation has made it difficult for economies to
function. Economies continue to struggle with the impacts of the COVID-19
pandemic, first to protect people’s health and also to ensure the recovery of
the economy. This current process has been interrupted by the war in Ukraine
and all countries must find ways to ensure macroeconomic stability. So,
the insurance of economic growth is paramount. Productivity growth is the
one of the most important sources and a key factor for sustained economic
growth. Economic recovery and an increase in GDP are preconditions for
reducing poverty and improving quality of life.
Productivity is an indicator of the use (exploitation) of the potential of inputs
for creating new value added in the economy. In the long term, productivity
growth is dependent upon innovation, investment in physical capital, and
investment in human capital. These immediate factors are shaped by the
environment in which enterprises operate: market structures, infrastructure,
the institutional framework and the quality of governance. The main
objective of this paper is to study productivity growth in the Republic of
North Macedonia and to analyse and propose measures that can be taken
and stimulate productivity. There are two primary ways of measuring productivity: labor productivity
and total factor productivity (TFP). Throughout this paper, productivity is
considered as output (gross domestic product - GDP) per input of a unit
of labour. This concept takes into consideration the number of economic
engaged people, rather than the number of working hours as the measures of
labour input in the economy. Therefore, the indicator of labour productivity
in the Republic of North Macedonia that is calculated yearly and quarterly,
is a weighted sum of sector-level productivity as a ration between the value
added of a sector and the number of employed persons. The analysis uses
the database of State Statistical Office and National Bank of Republic of
North Macedonia.
Also, the total factor productivity (TFP) is considered in this paper.
Productivity calculations use the Solow growth model of economic growth
as a function of labour, capital and productivity. As such, TFP measures
the effectiveness of combined factor inputs and is often used to represent
technological progress. TFP may also incorporate wider factors such as
organizational and institutional characteristics. TFP is also widely known
as a Solow’ residual. The calculations of the TFP for the previous period of
2000-2020 are presented in this paper.
These two aspects cover the productivity in macroeconomic contexts. The
other crucial aspect in the analysis of productivity is the level of productivity
of the enterprise.
The Enterprise Survey conducted by the World Bank in 2009, 2013 and
2019 include 360 enterprises in North Macedonia. The Survey covers
the question about labour productivity growth by year. This measure that
explains the performance of the enterprises is essential to the conclusions
about the productivity in firms.
Evaluating employee perceptions of productivity and recent changes in
work due to COVID-19 is also valuable for the overall state. Hence, the
questions on productivity were part of the online survey distributed among
employees in North Macedonia. The findings from the received responses
are also included here. Labour productivity in North Macedonia is low, and in the past five years
even negative. Quarterly, the labour productivity shows the lowest values
in the 2020 which is the year of the pandemic and cannot be referenced
for comparison. Besides that, the labour productivity is with low level and
mostly with negative values in the whole analyzed period (2012–2020).
The calculations of the total factor productivity using the Solow’s growth
model and Cobb-Douglas production function for the past twenty years,
shows that GDP average growth is 4,97% and the TFP contribute by 1,69%.
Therefore, the expectations for the increase of the GDP and reaching
economic growth that can be sustainable is possible with increasing total
factor productivity in the North Macedonia.
function. Economies continue to struggle with the impacts of the COVID-19
pandemic, first to protect people’s health and also to ensure the recovery of
the economy. This current process has been interrupted by the war in Ukraine
and all countries must find ways to ensure macroeconomic stability. So,
the insurance of economic growth is paramount. Productivity growth is the
one of the most important sources and a key factor for sustained economic
growth. Economic recovery and an increase in GDP are preconditions for
reducing poverty and improving quality of life.
Productivity is an indicator of the use (exploitation) of the potential of inputs
for creating new value added in the economy. In the long term, productivity
growth is dependent upon innovation, investment in physical capital, and
investment in human capital. These immediate factors are shaped by the
environment in which enterprises operate: market structures, infrastructure,
the institutional framework and the quality of governance. The main
objective of this paper is to study productivity growth in the Republic of
North Macedonia and to analyse and propose measures that can be taken
and stimulate productivity. There are two primary ways of measuring productivity: labor productivity
and total factor productivity (TFP). Throughout this paper, productivity is
considered as output (gross domestic product - GDP) per input of a unit
of labour. This concept takes into consideration the number of economic
engaged people, rather than the number of working hours as the measures of
labour input in the economy. Therefore, the indicator of labour productivity
in the Republic of North Macedonia that is calculated yearly and quarterly,
is a weighted sum of sector-level productivity as a ration between the value
added of a sector and the number of employed persons. The analysis uses
the database of State Statistical Office and National Bank of Republic of
North Macedonia.
Also, the total factor productivity (TFP) is considered in this paper.
Productivity calculations use the Solow growth model of economic growth
as a function of labour, capital and productivity. As such, TFP measures
the effectiveness of combined factor inputs and is often used to represent
technological progress. TFP may also incorporate wider factors such as
organizational and institutional characteristics. TFP is also widely known
as a Solow’ residual. The calculations of the TFP for the previous period of
2000-2020 are presented in this paper.
These two aspects cover the productivity in macroeconomic contexts. The
other crucial aspect in the analysis of productivity is the level of productivity
of the enterprise.
The Enterprise Survey conducted by the World Bank in 2009, 2013 and
2019 include 360 enterprises in North Macedonia. The Survey covers
the question about labour productivity growth by year. This measure that
explains the performance of the enterprises is essential to the conclusions
about the productivity in firms.
Evaluating employee perceptions of productivity and recent changes in
work due to COVID-19 is also valuable for the overall state. Hence, the
questions on productivity were part of the online survey distributed among
employees in North Macedonia. The findings from the received responses
are also included here. Labour productivity in North Macedonia is low, and in the past five years
even negative. Quarterly, the labour productivity shows the lowest values
in the 2020 which is the year of the pandemic and cannot be referenced
for comparison. Besides that, the labour productivity is with low level and
mostly with negative values in the whole analyzed period (2012–2020).
The calculations of the total factor productivity using the Solow’s growth
model and Cobb-Douglas production function for the past twenty years,
shows that GDP average growth is 4,97% and the TFP contribute by 1,69%.
Therefore, the expectations for the increase of the GDP and reaching
economic growth that can be sustainable is possible with increasing total
factor productivity in the North Macedonia.
Subjects