Has Switzerland Really Been Marked by Low Productivity Growth? Hours Worked and Labor Productivity in Switzerland in a Long‐run Perspective

Abstract

This paper shows that previous work has understated Switzerland's performance in terms of labor productivity growth. First, available data on hours worked are incoherent and overestimate growth in hours worked. The paper therefore establishes a consistent series of total hours worked and its components covering 1950–2010, showing that Swiss labor inputs actually were stable from 1964 to 2007. Second, long‐term improvements in Switzerland's Terms of Trade indicate that quality improvements in Swiss exports might not be fully mirrored in growth of GDP and, hence, productivity growth.

Characteristics and Drivers of the Swiss “Job Miracle”

“…7 The evolution of Switzerland's labor share of income also suggests that average wages cannot account for the "job miracle". Switzerland's labor share has remained remarkably stable, which is in contrast to the decreases in labor shares observed in most other developed countries (see SIEGENTHALER andSTUCKI, 2015, andSIEGENTHALER, 2014).…”

“…3 As a result, the growth rate of labor productivity in Switzerland between 2000 and 2010 was, in a historical perspective, unprecedentedly low (SIEGENTHALER, 2014). 4 See e. g. FREEMAN (2013).…”

Dividing the Pie

“…Switzerland’s specialty in this respect may be explained by its comparative advantages. In particular, Swiss exporters have focused on niche products and services with high quality, above-average complexity, and relatively high skill intensity (OECD 2013b; Siegenthaler 2015). Therefore, losses in value-added shares of traditional labor-intensive industries (e.g., manufacturing of raw materials or textiles, construction, and retail trade) and gains in value-added shares of industries with low labor shares (e.g., finance, ICT, wholesale trade, and water and electricity supply) are to a large extent compensated by shifts toward skill-intensive industries with above-average labor shares (e.g., the electrical and watchmaking industry; construction; the state sector; and business services such as accounting, consultancy, and research and development [R&D]).…”

“…Figure 4 illustrates that the growth of ICT capital in Switzerland was substantially lower between 1984 and 1997 than the growth observed in many other developed countries. The comparatively low growth in ICT capital throughout this period is mirrored in comparatively low rates of technological progress, in terms of both direct measures of productivity growth (labor productivity and TFP; OECD 2013a; Siegenthaler 2015) and indicators of technological progress such as per capita patents, the R&D investment share, and the share of ICT employment in business-sector employment (OECD 2011). Hence, the negative impetus of technological progress in general and ICT adoption in particular on the labor share was potentially smaller in Switzerland than in most other developed countries, particularly between 1980 and the mid-1990s.…”

The Skill-Biased Effects of Exchange Rate Fluctuations

“…Second, Swiss manufacturer may have comparatively large scope in setting prices owing to their favorable market position (cf. Siegenthaler, 2015), which may allow them to pass through the exchange rate shocks to their selling prices. Indeed, as in earlier studies (Campa and Goldberg, 2001;Nucci and Pozzolo, 2010;Alexandre et al, 2011), we find that the firms' competitive environment shapes the elasticity of employment to exchange rate movements.…”