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Table 4.4.1 Ranking of states based on hourly productivity in 2011 (GDP per working hour, USD) Rank State Hourly productivity 1 Norway 81.50 2 Luxembourg 78.90 3 Ireland 66.40 4 U.S.A. 60.30 5 Netherlands 59.80 6 Belgium 59.20 7 France 57.70 8 Germany 55.30 9 Denmark 53.20 10 Switzerland 51.70 11 Sweden 51.60 12 Austria 51.40 Rank State Hourly productivity 13 Finland 49.10 14 Australia 48.60 15 Spain 48.10 16 Great Britain 46.90 17 Canada 46.20 18 Italy 45.60 19 Japan 39.80 20 Iceland 39.60 21 Slovenia 35.90 22 New Zealand 34.00 23 Greece 33.90 24 Israel 33.80 Rank State Hourly productivity 25 Slovakia 33.00 26 Portugal 32.50 27 Czech Republic 30.60 28 South Korea 28.30 29 Turkey 28.10 30 Hungary 26.80 31 Poland 26.20 32 Estonia 25.90 33 Russia 22.00 34 Chile 20.90 35 Mexico 16.70 Source: OECD iLibrary productivity, and the available data. At the state level, the most popular measures of productivity are gross domestic product (GDP) and gross national product (GNP) (OECD 2006). At the economic sector level, the value added in the corresponding economic sector is usually measured. Based on value added, productivity is calculated per worker, per hour worked, or in relation to some other resource indicator. At the company level, both natural units – tonnes, kilograms, etc. – and produced value added is used to measure productivity. At the worker level, productivity is also measured in either natural units or based on value added. Internationally, the most popular indicator for measuring productivity in the monitoring conducted by the OECD, Eurostat and World Bank is value added, which is defined as “the value added to products by every action (production, marketing, etc.) in the value-adding process, which is reflected in the price increase of the product and offsets all the costs related to the utilisation of resources in the supply chain, as well as the profit” (Mereste, 2003, 508). 2 Since, when measuring productivity, the output is usually associated with a specific input (e.g. worker, capital unit, etc.); this allows the levels of productivity to be compared by states, companies, etc. The most popular factor in constructing productivity indicators is labour, because labour costs comprise a significant part of a product’s value; the indicators related to labour are simple to measure; the labour productivity indicators are relatively simple to interpret; and these indicators are easily comprehended by economic policymakers. For a long time, labour productivity was the only possible measure of productivity, because there were no other effective methods for collecting and presenting data related to capital (Galarneau et al. 1995, 2). At the same time, it should be remembered that productivity is not only labour productivity, since considerably more inputs are involved in the production process. Various combined indicators are also used to measure productivity. One of the most important and most frequently used productivity indicators for characterising a state’s competitiveness are unit labour costs (ULC) (OECD 2007) 3 . To find the unit labour costs, the labour costs per worker are divided by labour productivity. On the one hand, the ratio of unit labour costs shows the amount of labour costs that are required to generate one unit of GDP, and on the other, the unit labour costs express the ratio between the labour costs and labour productivity used to generate GDP (Mertsina et al. 2012). 4 The dynamics of this indicator are characterised by the ratio between the changes in labour costs and productivity. Sometimes, the computation of unit labour costs is also reduced to the hourly level, and is calculated as the ratio of total labour costs per hour to real output per hour. Generally, the changes in labour costs and productivity should be in balance. If the increase in labour costs exceeds the growth of productivity, this creates a pressure for reducing the number of workers or for increasing productivity. If the growth of productivity exceeds the increase in labour costs, companies increase their profits, and it is possible to increase wages. It is important to note that the presumption of a unit labour costs balance is not valid only for those countries where the initial level of labour costs is very low. Compared to other countries, relatively low unit labour costs allude to the country’s strong competitive advantage. The growth of unit 2 Value added can be calculated in a simplified manner with the following formula: LV = NK – KK + TK + K ,where: LV – value added, NK – net return on realisation, KK – total costs, TK – labour costs (wage costs and social taxes), K – depreciation of fixed assets. The indicators calculated in this way are called the gross value added. An alternative definition, which is also used by the OECD, defines the gross value added as the difference between total production and intermediate consumption (OECD, 2007). Gross value added includes taxes, interest, rent, profit, depreciation as well as wages for management and workers, including social insurance. The value added indicator, which does not include the depreciation of fixed assets, is called net value added. The advantage of using value added, as an indicator of productivity, is that it eliminates the impact of the material intensity of production, which makes it easier to compare various fields of activity. Value added has also been used frequently in practice, due to its simplicity. 3 The term special labour cost is sometimes used in appropriate literature (see, for example, Tamm 2005). Unemployment benefits / Number of unemployed 4 The unit labour costs are calculated as follows: Nominal unit labour costs = Real GDP / Total number of employed 174 Estonian Human Development Report 2012/2013
labour costs at the company level reduces profitability and causes inflationary pressure, because the company directs the increased labour costs to the consumer, i.e. increases the prices for products and services. It should also be noted that while unit labour costs only examine the connection between labour costs and productivity, other costs besides labour costs, like capital costs, are also important. 4.4.2 The general level of productivity in the Estonian business sector The analysis of Estonia’s productivity level starts from the viewpoint of the country as a whole. At this macro level the GDP indicator is used as the measure of productivity, which can be used both at its nominal value or adjusted for purchasing power parity. In the latter case, the differences in the prices of goods and services in various countries are taken into account, and the GDP indicator for the given state is adjusted accordingly. When calculating the productivity of the entire business sector, the GDP indicator is divided by the number of people employed in the economy as a whole and the hours that they work. Thus, we get various indicators of labour productivity. Hourly productivity is a somewhat more precise measure of labour productivity, than the level of productivity per worker, because some of the people who are employed may not be working fulltime (Table 4.4.1). Based on a summary of OECD data, Estonia ranks 32 nd , i.e. the next to the last position compared to the reference states. Chile is below us and Hungary slightly above, with the Czech Republic, Slovakia, and the South Korea slightly above that. A large group of small euro area states – Austria, Finland, Denmark – along with Canada and Japan, rank significantly higher. Of the reference states, Ireland has a particularly high productivity level, which reaches 67 USD per hour, followed by Netherlands, with an hourly productivity of 60 USD. 4.4.3 Productivity in Estonia’s main economic spheres Estonia’s position related to labour productivity, in comparison to the other reference states, is shown in Table 4.4.2. The 2010 data from Eurostat and the national statistics offices related to the level of value added per worker has been used. The ten aggregated areas of activity have been differentiated in the comparison. For the better visualisation of the results, the relative level of Estonian productivity by the branches of the economy is shown as a percentage of the level of the corresponding state. The economic branches of activity where Estonia’s labour productivity is higher than the comparative country, i.e. the ratio is over one hundred, have been shaded. In the comparison, Estonia’s productivity is, unfortunately, significantly lower than the majority of the states in most of the economic spheres. Only compared to Hungary is Estonia’s productivity level higher in most of the economic activity areas, but manufacturing industries productivity in Estonia is lower than in Hungary. At that, Hungary’s economy has been in decline during the last few years, and as a result of the financial crisis (primarily due to the impact of currency exchange fluctuations), has suffered more than the other states. Estonia’s level of productivity is higher than the corresponding indicators for the Czech Republic and Slovakia, in several fields. Compared to the Czech Republic, Estonia has higher productivity in water supply, transport, and administrative and support service activities (building management, labour leasing, etc.). Estonia’s productivity is also somewhat higher than Slovakia’s level in water supply and transportation, as well as accommodations and food service. Water supply in Estonia is also more productive than in Slovenia. Compared to the remaining states, Estonia’s level of productivity is significantly lower. The areas that Table 4.4.2 Productivity by aggregated areas of activity (as a percentage of the level in the reference states in 2010) Manufacturing industry Electricity energy, etc. Water supply Trade Transportation Accommodation, food service Information and communications Real estate Professional, scientific and technical Administrative and support service activities Ireland 11 24 61 33 40 40 20 82 29 41 Switzerland 18 31 30 14 28 21 24 23 16 33 Denmark 22 27 26 29 27 32 35 22 23 32 Netherlands 24 26 43 34 41 42 36 20 30 64 Austria 26 43 43 34 40 31 42 18 31 34 Finland 28 29 38 32 50 27 42 15 33 45 EU 27 38 45* 45 60* 43 40 36 34 55 Slovenia 64 91 113 55 74 50 68 57 63 96 Hungary 75 78 177 124 152 146 92 120 115 135 Czech Republic 82 40 148 83 125* 90 66 63 74 110 Slovakia 93 66 164 84 138 108 71 69 88 94 Source: Eurostat *2009 data. EU27 – European Union average. Estonian Human Development Report 2012/2013 175
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ESTONIAN HUMAN DEVELOPMENT REPORT 2
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Table of Contents 1 Human Capital /
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Dear Reader Since the moment when E
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1Human Capital Estonian Human Devel
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the HDI’s content has also been h
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Figure 1.1.1 The human development
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Figure 1.1.7 The income sub-index:
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The results of the Princeton Projec
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the hypothetical generation. The to
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Figure 1.2.3 Life expectancy. Eston
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Table 1.2.2 also presents the most
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The new trends that are appearing i
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Figure 1.2.8 Components of populati
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New features were introduced into E
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Initiation of Voluntary Birth Contr
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Table 1.3.1 Best-known educational
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(OECD 2012b). Therefore a certain r
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The reciprocal dependence of the pr
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Figure 1.3.8 Percentage of students
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Table 1.3.4 The quality of educatio
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1.4 Health Raul-Allan Kiivet Change
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Table 1.4.1 Usage of prescription m
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allude to the fact that approximate
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promote healthy lifestyles among th
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Figure 1.5.1 The World Values Surve
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Table 1.5.2 Estonia’s participati
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Figure 1.5.3 The percentage of the
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Figure 1.5.5 Percentage of the Esto
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The fact that Estonia’s position
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Summary Mati Heidmets The global vi
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2People and Society Estonian Human
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Table 2.1.1 Structure of the Bertel
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tioning market economies (15 states
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2.2 Freedom and democracy Martin M
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Table 2.2.1 Democracy indicators Po
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Figure 2.2.2 The distribution of th
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would be something that none of the
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political participation are general
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strongest, while a very small perce
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is concerned, Estonia is one of the
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Figure 2.4.2 Average circulation of
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2.5 Corruption Jüri Saar In accord
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Lithuania, 61%; and in Russia, 69%.
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2.6.2 Intentional homicides in Esto
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crime. And thirdly, there was a wis
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References 1. Ahven, A. & Tabur, L.
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states included in the EU Kids Onli
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2.8 Public assessments of the state
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Figure 2.8.4 Changes releated to tr
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of the state’s development are en
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Table 2.9.1 The positions of Estoni
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3. IEP (2011). Structures of Peace.
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3Welfare and the Quality of Life Es
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choices made, not what people say t
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Figure 3.1.5 Public social spending
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tion agreed upon the social contrac
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References 1. Aidukaite, J. (2006).
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hand, to the “inequality of acces
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and explanations of the extent of i
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5- much more than I deserve. Some d
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people in Estonia consider the inco
Page 125 and 126: Table 3.3.1 Experienced Well-Being
Page 127 and 128: at about 70%. In Latvia and Lithuan
Page 129 and 130: sign. It seems that the usual view
Page 131 and 132: 3.4 Quality of life Anu Toots 3.4.1
Page 133 and 134: a uniform composite indicator has n
Page 135 and 136: 3.4.6 The components of life qualit
Page 137 and 138: Figure 3.4.4c Perceived quality of
Page 139 and 140: Figure 3.4.5 Changes in the depriva
Page 141 and 142: 3.5 Environment dimension of well-b
Page 143 and 144: Figure 3.5.1.b Estonia’s position
Page 145 and 146: 3.5.4 Energy intensity The energy i
Page 147 and 148: productivity, which is defined as t
Page 149 and 150: perceive themselves as worse off th
Page 151 and 152: 4The Economy Estonian Human Develop
Page 153 and 154: vide a valuable connection for maki
Page 155 and 156: Figure 4.1.3 Components of economic
Page 157 and 158: ule of law, the sub-indicators for
Page 159 and 160: References 1. Acemoglu, D.; Robinso
Page 161 and 162: Development Report employs generali
Page 163 and 164: and pasture land, and this was capi
Page 165 and 166: Basing the total and net savings re
Page 167 and 168: 4.3 Labour market Reelika Leetmaa,
Page 169 and 170: The problems include the very limit
Page 171 and 172: • Expenditures for active labour
Page 173 and 174: who lose their jobs. These ensure i
Page 175: 4.4 Productivity and the economic s
Page 179 and 180: Table 4.4.4 Comparison of the produ
Page 181 and 182: Figure 4.4.1 Annual average increas
Page 183 and 184: 4.5 Innovation Erik Terk, Katrin M
Page 185 and 186: Table 4.5.2 Comparison of innovatio
Page 187 and 188: Table 4.5.4 Comparison of the indic
Page 189 and 190: in order to make the R&D potential
Page 191 and 192: It is characteristic of the South K
Page 193 and 194: mechanisms for increasing their sta
Page 195 and 196: Globalisation and Policy Patterns 5
Page 197 and 198: When Estonia regained its independe
Page 199 and 200: 5.2 The impacts of globalisation an
Page 201 and 202: Table 5.2.2 Support of the differen
Page 203 and 204: 5.3 Development policies Erik Terk,
Page 205 and 206: • C -the “Estonia-centred” su
Page 207 and 208: Figure 5.4.1 Support for the possib
Page 209: Summary Erik Terk Estonia is part o
Page 212 and 213: ehavioural patterns. Therefore, it
Page 214 and 215: EDR 2012/2013 authors Clemens Buche
Page 216 and 217: EDR 2012/2013 authors Alari Purju i
Page 218: Editor-in-Chief: Mati Heidmets Prod
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