Productivity in Belgium, one of the most underestimated buffers to absorb economic blows, has not been undermined by the pandemic. But it is still rising too slowly to absorb today’s crises.
During the corona pandemic, Belgian employees managed to do more work per hour than before. This is evident from the annual report of the National Productivity Council.
The fact that Belgium has had such a council since 2019 is because the European Commission asked to pay more attention to productivity. There is an often underestimated economic resilience in a population that systematically gets a little more work done per hour. It makes it easier to absorb shocks, such as the energy crisis, the climate transition and the aging population.
Productivity growth is still too slow to absorb new shocks.
One of the questions of the pandemic was to what extent the lockdowns and telecommuting caused the economic engine to sputter. That worked out well, as it turns out. Between 2019 and 2021, productivity in our country grew by 0.9 percent, while it rose by 0.8 percent for the entire euro zone.
This increase happened in two steps. At first it went up with a spectacular jump. That was because the lockdown mainly shut down the less productive parts of the economy, such as the hospitality industry, while the most productive, the manufacturing industry, continued to run. After the peak, there was a decline, but it remained small enough to still make progress over the two pandemic years.
Financial crisis
That is less obvious than it seems. During the financial crisis, Belgians became less productive. That was because companies had to go through a severe recession and the financial markets crashed. Companies have been hesitant to invest in research and development, which is crucial for increasing productivity.
Another factor is that the European Union responded quickly to the corona crisis and the Belgian government intervened en masse to support the labor market through technical unemployment. This allowed companies to resume business immediately as soon as the virus made this possible.
Does that also mean that teleworking is just as efficient as going to the office every day? Luc Denayer, the president of the National Productivity Council, says it’s hard to draw that conclusion. For their sudden telework, companies could rely on a corporate culture that has been built up for years by working together in the office. It is not yet clear whether teleworking remains efficient without that history.
1970s
The fact that productivity growth continued to be sluggish during the pandemic is good news, but it does not change a problem that is more important in the long run: productivity growth is still too slow to absorb new shocks. Denayer compares it to the energy shocks of the 1970s. They hit it harder than today, but the resilience was also greater then. At that time, Belgian employees became 4 to 5 percent more productive per hour worked year after year, which made it easier to absorb the shock.
Labor productivity in Flanders is growing barely faster than in Brussels and Wallonia.
Over the past twenty years, productivity growth in Belgium has shrunk to 0.8 percent. That is just below those for the entire eurozone (0.9%) and Germany (1%). Over the past two decades, Flemish productivity has grown by 0.9 percent per year, in Brussels and Wallonia by 0.7 percent.
Research and science
How can that get better? A first recommendation is to continue to invest in research and development. The exemption from withholding tax for researchers in particular seems to have an impact, according to the NRP report. The link is less clear for the corporate income tax exemption, unless the logic is that without that tax advantage the big pharmaceutical companies wouldn’t even be here.
Another recommendation is more attention to science, technology, engineering studies and mathematics and to investments. The ideal is to build an ecosystem for a much broader part of the economy, as has been achieved in medicine: from good university education to the expertise in hospitals and the listed biotech and pharmaceutical world. Another challenge will be the climate transition. Without investments in this, productivity in the green economy will be at risk.
The major challenge is to combine the government’s objective to get more people into work with the ambition to get them to do more and more work per hour worked. The economic literature shows that combining these two goals is very difficult. One of the sectors that has succeeded in doing so in recent years is once again pharmaceuticals.
