Growth per capita GDP mainly due to increased labour productivity

10/09/2009 15:00

Economic growth will be increasingly under pressure in the decades to come as a result of the ageing process in the population. To secure economic growth, measures will have to be taken to create jobs for more people. One of the measures that are being considered is raising retirement age. Over the past sixty years, it has become clear that improving labour productivity leads to growth of the GDP per capita.

GDP per capita and labour productivity

GDP per capita and labour productivity

More than fourfold increase post-war per capita earnings

Average earnings per Dutch resident have increased more than fourfold over the past sixty years. Average earnings, expressed in GDP per capita, depend on labour productivity and working hours. The growth of GDP per capita is predominantly due to an increase in labour productivity. Since 1975, labour productivity has increased by an average 1.5 percent annually. Working hours per resident have hardly changed after the Second World War.

Working hours per resident depend on the labour participation rate, working hours per employed person and composition of the population. The labour participation rate has risen continually since the early 1980s. As a result, the GDP per capita rose rapidly, but was partly offset by the ongoing decline in working hours. Changes in the composition of the population had a positive effect until the 1990s, as the proportion of the active population in the age category 15-64 was growing.

GDP per capita

GDP per capita

Recent population developments have downward effect

Since the early 1990s, the composition of the population has changed. The ratio between the number of 15 to 64-year-olds and over-65s has dropped from eight to one in 1950 to four and a half to one in 2009 and is anticipated to drop to two and a half to one in 2030. If conditions remain unchanged, this means that by 2030 the relation between 15 to 64-year-olds and the entire population (and consequently the GDP per capita) will be 10.5 percent down on the current level. But if the annual growth rate of labour productivity will be 1.5 percent, as was the case in the preceding three decades, the GDP per capita will have risen by 24 percent in 2030.

Dirk van den Bergen and Hans Langenberg