This presentation by Christian Kastrop, Director, Policy Studies Branch, Economics Department, OECD, was made at the joint meeting of the Senior Budget Official Performance and Results Network and the Public Employment and Management Expert meeting on 26 November 2015. For further information, please see http://www.oecd.org/gov/pem/.

1. PRODUCTIVITY AND
PUBLIC SECTOR
PERFORMANCE
Christian Kastrop
Director – Policy Studies Branch
Economics Department, OECD
11th ANNUAL MEETING OF THE OECD SENIOR
BUDGET OFFICIALS PERFORMANCE AND
RESULTS NETWORK
Paris, 26 November 2015

2. • The share of services in economic activity (both
domestic value added and trade) has been rising
sharply.
• Public services at large (including health,
education, SOEs) will become increasingly
important for aggregate productivity in the context
of ageing and skill-biased technical change.
• How does recent OECD research on productivity
developments in the private sector inform our
thinking about productivity in the public sector?
Background

3. • Productivity: now more than ever
• Productivity: what’s wrong?
– Broken diffusion machine
– Misallocated resources, especially skills
• Productivity: questions for the public sector
Roadmap

4. I. Productivity: now more than ever

5. Differences in GDP per capita mostly
reflect labour productivity gaps
Percentage differences compared with the upper half of OECD countries
Productivity isn’t everything but in the long run
its almost everything – Paul Krugman (1994)

6. But aggregate productivity growth
slowed, even before the crisis
Labour productivity growth since 1990
GDP per hour worked (China and India refer to GDP per worker)
Big worry since future economic growth will
largely depend on productivity growth, partly due
to slowing educational attainment

7. Productivity and innovation more than
jobs will be the key driver of growth
Ageing populations reduce scope to grow through an increasing labour force
Innovation and technology spillovers will increasingly drive growth
Increasing education and skills of workers will be key
Allocating resources to high productivity firms and matching skills to jobs will also be crucial
7

8. II. Productivity: what’s wrong?

9. The breakdown of the diffusion
machine
Average of labour productivity across each 2-digit sector (log, 2001=0)
Source: Andrews, D. C. Criscuolo and P. Gal (2015), “Frontier firms, technology diffusion and public policy: micro
evidence from OECD countries”, OECD Productivity Working Papers No. 2.
Diffusion is esp. challenging in market services, which are less exposed to
global competition
Diffusion is likely to be even more difficult in public services given their
non-market nature

10. • Four factors can enable productivity diffusion:
1. Global connections: trade, FDI, participating in GVCs,
international mobility of skilled workers
2. Investments in knowledge based capital – R&D,
managerial capital
3. Efficient allocation of resources, especially skills
4. Appetite for risk and experimentation
• Each factor is connected to competitive pressure
in some way.
• How do we achieve the diffusion of new
technologies and best practices in the public sector,
given the inherent rigidities and the natural lack of
competitive pressure?
What drives diffusion?

11. • OECD projections show a slowing in human
capital accumulation over coming decades 
maximising human talent and its efficient use in
the workplace will be key.
• BUT the allocation of human talent in OECD
countries is far from perfect:
– Skill mismatch affects ¼ workers in the OECD
countries, with significant costs to productivity.
Maximising human talent is key

12. Productivity gains from reducing skill
mismatch to the best practice level
Differences in skill mismatch can account for one-fifth of
the labour productivity gap between Italy and the US.
Source: Adalet McGowan, M and D. Andrews (2015), “Labour market mismatch and labour productivity:
evidence from PIAAC data ” OECD Economics Department Working Paper, No. 1209.

13. • Skill mismatch is lower when:
1. Barriers to the firm entry and exit are lower
2. Barriers to labour mobility are lower
3. Managerial quality is high
4. Workers can engage in lifelong learning
• To what extent can the public sector replicate these
features to ensure a more efficient matching of skills
to jobs?
• What are the specific rigidities that stifle mobility and
matching in non-market services and what can
policy do about them?
What drives skill mismatch?

14. • Better measuring productivity is a prerequisite for improving
public sector performance. What best practices can be
followed?
• How do we promote the diffusion of cutting edge ICT-
related technologies and applications (including big data) to
the public sector?
• How do we improve managerial performance in the public
sector and the governance of state-owned enterprises?
• How do we improve the allocation of human talent in the
public sector?
Productivity in the public sector:
some key questions

15. New book:
out now!
Available at:
http://www.oecd.org/economy/the
-future-of-productivity.htm
Book + 5 page policy note +
technical paper + videos
Authors:
Muge Adalet McGowan
Dan Andrews
Chiara Criscuolo
Giuseppe Nicoletti