Can productivity save global economic growth?

By Tarryn Landman

People in a busy plaza

Rapid growth in productivity and the number of workers has helped to fuel global GDP growth over the past 50 years. As populations age and workforces shrink in many countries, how will the global economic growth fare? The McKinsey Global Institute (MGI) looks at this question in a new study of the G19 (the G20 minus the European Union) and Nigeria, which generate 80 percent of global GDP.

According to Global growth: Can productivity save the day in an aging world?, annual global employment growth could drop to 0.3 percent over the next 50 years from the 1.7 percent seen between 1964 and 2014. This means that, without faster productivity growth, global GDP growth could decline from 3.6 percent a year between 1964 and 2012 to only 2.1 percent over the next 50 years, a drop of 40 percent. In the United States, GDP growth would slow by about one third, while growth could decline by more than half in Canada, falling from 3.1 percent to 1.5 percent.

It’s not all bad news, though. In the report, MGI presents five sector case studies (agriculture, food processing, automotive, retail, and health care) that suggest annual productivity growth to 2025 could be boosted to 4 percent in the G19 and Nigeria. That’s more than the 3.3 percent needed to compensate for demographic trends. Three quarters of this potential growth comes from adoption of best practices and productivity improvements, while one quarter would come from technological, operational, and business innovations. The report also includes ten “enablers” that could potentially lift global GDP growth.

For those in economic and workforce development, this report highlights the need for businesses, governments and other stakeholders to drive productivity growth. Businesses will play a particularly important role in implementing best practices and innovation, as well as in attracting and retaining workers of all ages. Governments can create policies that increase workforce participation among women, young people, and those over 65 years old. The full report and an executive summary are available on the McKinsey Global Institute website.

This post originally appeared in TINAN 60. Subscribe to TINAN for monthly emails on economic, workforce and cultural development news and resources or view the TINAN archive for more information.