Four worlds of productivity growth: A comparative analysis of human capital investment policy and productivity growth outcomes
| Author | Takayuki Sakamoto |
| Published date | 01 September 2018 |
| Date | 01 September 2018 |
| DOI | http://doi.org/10.1177/0192512116685413 |
| Subject Matter | Articles |
https://doi.org/10.1177/0192512116685413
International Political Science Review
2018, Vol. 39(4) 531 –550
© The Author(s) 2017
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DOI: 10.1177/0192512116685413
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Four worlds of productivity growth:
A comparative analysis of human
capital investment policy and
productivity growth outcomes
Takayuki Sakamoto
University of Kitakyushu, Japan
Abstract
Labor productivity is an important determinant of the wealth of national economies and standards of living, as its
growth explains half of per capita GDP growth. I show that there are four worlds of productivity growth among
industrialized countries, by decomposing labor productivity growth into multifactor productivity (MFP) growth
and capital deepening. The four worlds that emerge from the analysis are: (1) human capital investment- and MFP
growth-dominant Nordic countries; (2) physical capital investment- and labor productivity growth-dominant
liberal countries; (3) continental European countries whose moderately high human capital investments create
decently high MFP growth, but whose low physical capital investments push down their labor productivity; and
(4) South European countries with both the lowest human capital investment and lowest productivity growth.
The four worlds are a result partly of the countries’ partisan politics, economic growth strategies, and human
capital formation policies – different policies add differently to the components of labor productivity.
Keywords
Human capital investment policy, comparative productivity growth, education, family support, active labor
market policies, redistribution, comparative welfare state
Introduction
Human capital is important to national wealth and economic growth. Scholars of comparative
political economy have shown that different governments pursue distinct human capital formation
policies to promote the productivity of the economy (Boix, 1998; Busemeyer, 2015; Iversen and
Stephens, 2008; Pontusson, 2005). The literature has suggested, for instance, that to promote pro-
ductivity, Nordic countries make public investments in human capital through public education,
family support, and vocational training. As would be expected from the literature, Nordic countries
Corresponding author:
Takayuki Sakamoto, Department of Policy Studies, University of Kitakyushu, 4-2-1 Kitagata, Kokuraminami-ku,
Kitakyushu, 802-8577, Japan.
Email: halosakamoto@gmail.com
685413IPS0010.1177/0192512116685413International Political Science ReviewSakamoto
research-article2017
Article
532 International Political Science Review 39(4)
(except Denmark) indeed have high labor productivity growth. But there is a puzzle: liberal market
economies (LMEs) – whose governments make much smaller public human capital investments
– also have high labor productivity growth. It is as high as Nordic countries, and definitely higher
than continental European countries that make larger human capital investments than LMEs (con-
tinental countries invest less than Nordic ones). That is, high labor productivity growth is achieved
both by countries that spend the largest amount of government money on human capital and by
those that spend the least. Why? Do governments’ human capital investments not matter to produc-
tivity? Does LMEs’ human capital formation approach with greater emphasis on private provision
work as well as Nordic countries’ public investment approach? Or is there a reason other than
human capital for LMEs’ high growth?
This paper shows, among other things, that decomposing labor productivity into its components
– multifactor productivity (MFP) and the capital–labor ratio – helps explain why we get such pro-
ductivity outcomes. The decomposition shows that labor productivity growth is a function of
growth in MFP and in the capital–labor ratio. It reveals that there are four patterns of productivity
growth generation among major Organisation for Economic Co-operation and Development
(OECD) countries: (1) human capital investment- and MFP growth-dominant Nordic countries; (2)
physical capital investment- and labor productivity growth-dominant LMEs; (3) continental coun-
tries whose moderately high human capital investments create decently high MFP growth, but
whose low physical capital investments push down their labor productivity; and (4) South European
countries with both the lowest human capital investment and lowest productivity growth. In rela-
tive terms, Nordic countries’ high labor productivity growth is driven by MFP growth. LMEs’ high
labor productivity growth is powered by fixed capital investment growth, while their MFP growth
is not as high as Nordic and continental countries except in service industries. Decomposition helps
us see how the countries’ different human capital investment policies may contribute differently to
the components of labor productivity and then to labor productivity itself (and consequently to
economic growth). The way different countries add to the components is shaped by the their parti-
san politics, economic growth strategies, and policy profiles in human capital formation.
Productivity is one of the most important factors determining the wealth of national economies
and their standards of living. But it has received little analytical attention in political science (a few
exceptions are Boyer, 2004; Iversen and Wren, 1998; Kenworthy, 2004; Pontusson, 2005; Wren,
2013). This paper fills the gap by showing how productivity growth varies across countries and
suggesting possible reasons for the variation.
This paper proceeds as follows. First, I explain what labor productivity and its decomposition
are. Second, I describe how the countries under study are classified in terms of their human capital
investment policies. I show that Nordic countries make the largest public investments in human
capital, continental countries second, LMEs third, and South European countries the lowest. Third,
I identify the countries’ performance in labor productivity growth and establish that Nordic coun-
tries and LMEs have high growth, and continental countries low growth. Then, I show their perfor-
mance in the components of labor productivity (MFP and capital–labor ratios) and explain why
labor productivity growth turns out to be high in Nordic countries and LMEs, and low in continen-
tal countries. Lastly, I report the results of regressions that test the associations between human
capital formation policy and productivity growth.
Labor productivity and its decomposition
Labor productivity
Labor productivity is a commonly used measure of the productivity or efficiency of the economy.
It is measured as real gross domestic product (GDP) divided by total hours worked; approximately,
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