How to improve productivity in an inclusive way in the post Covid world
The International Monetary Fund (IMF) released the report “Boosting productivity in the aftermath of covid-19” , analyzing the opportunities and challenges from the economic changes produced by the pandemic, focusing on the consequences of incremental digitalization in productivity, human capital and market competition, and providing policy recommendations to enhance productivity and inclusiveness in the post covid-19 world.
The main highlights of the report are as follows
- Digitalization propelled by investment in intangibles could boost productivity. Digitalization of the economy and companies has mitigated productivity losses caused by mobility restrictions during the pandemic and could boost productivity in the future. According to IMFs estimates “a 10% rise in intangible investment is associated with about a 4.5% rise in labor productivity”. However there are some challenges for these to materialize in an inclusive and efficient way:
- Inefficient reallocation of resources: Higher productivity due to reallocation of capital and labor resources towards more digitized firms could be delayed by unprecedented “public support to help protect jobs and livelihoods which could keep resources in less productive firms”, creating “zombies firms”.
- Human capital: Next generation will be impacted by school closures and current labor force will need new skills as some jobs may never come back or will require reskilling and upskilling efforts.
- Concentration of intangible investments in a few large firms, raising their market power, could harm innovation and productivity in the long term. In fact, “in those sectors that have benefited most from the crisis, like digital services, already-dominant firms have performed better”.
- Recommendations to support post-pandemic productivity growth:
- To ensure access to financing for firms to invest in intangible capital and to design tax incentives to boost R&D.
- Gradually phasing out public support measures and having efficient bankruptcy procedures.
- To promote competition and prevent increases in market power that can harm productivity in the long term.
- Reskilling and upskilling efforts to support inclusiveness and strengthening potential growth.