Labour productivity increased further in 2022

Labour productivity is defined as gross value added per hour worked. In the long term, productivity growth is the most important source of economic growth in advanced economies. In 2022, the gross value added of the market sector rose by 5.2 percent, while the number of hours worked rose by 4.1 percent. These factors combined resulted in 1.0 percent labour productivity growth.

The market sector comprises all industries excluding the public sector, education and trade in real estate including owner-occupied dwellings. It accounted for 80 percent of total gross value added in 2022.

Accommodation and food services contributes most strongly

The contribution of an industry to labour productivity growth in the market sector is broken down into two components: the productivity development within that particular industry on one side, and changes in that industry’s share of hours worked in the market sector as a whole on the other (so-called shift contribution effect).

In 2022, the majority of industries contributed positively to labour productivity growth. Accommodation and food services, renting and other business support, and culture, sports and recreation contributed the most to this growth. The amount of gross value added per hour worked increased across these industries compared to 2021. Wholesale and retail trade, financial institutions and the construction industry all contributed negatively to the development of labour productivity. In these industries, the amount of value added per hour worked declined in 2022.

The largest contribution to labour productivity growth was made by the accommodation and food services industry. This industry saw a strong increase in 2022. However, on average, the amount of value added per hour worked is lower in this industry than for the market sector as a whole. The industry’s share in total hours worked increased in 2022, against a decrease in some other more productive industries. This resulted in a slightly negative shift contribution effect.

Another positive contribution to labour productivity was made by the renting and other business support industry and by culture, sports and recreation. Growth in these industries was almost entirely the result of a strong labour productivity increase within the individual industries. Since these industries are less productive on average, and their share in the total number of hours worked increased, there was a slightly negative shift contribution effect.

The manufacturing industry also contributed positively to the development of labour productivity. The value added per hour worked increased in this industry in 2022. Manufacturing is a more productive industry on average, with a relatively high amount of capital per hour worked. As the share of this industry in the total hours worked decreased, there was a negative shift contribution effect.

The two industries that contributed most negatively to the development of labour productivity in 2022 were wholesale and retail trade and financial institutions. As for wholesale and retail trade, this was mainly the result of deteriorating labour productivity within the industry. Among financial institutions, it was both deteriorating labour productivity and a negative shift contribution effect.

Productivity increase mainly due to higher multi-factor productivity

The development of labour productivity can be broken down into three different components: the contribution of multi-factor productivity, capital deepening (increase in the amount of capital used per hour worked) and labour composition (structure of the labour force).

The increase in labour productivity in 2022 was mainly the result of a growth in multi-factor productivity (2.1 percent). This indicator is the part of value added volume growth that cannot be attributed to growth in either labour or capital. The development of multi-factor productivity is seen as an indicator for technological advancement and as a measure of the efficiency of use of inputs in the production process.

Both capital deepening (-0.7 percent) and the composition of the labour force (-0.4 percent) contributed negatively to the development of labour productivity. Despite the fact that more capital such as machines and computers were used in the production process, labour input increased at a faster rate, resulting in negative capital deepening per hour worked. Additionally, the employment of relatively fewer highly qualified workers than in 2021 resulted in a negative contribution to labour productivity growth.