In-Depth Productivity Review of Belgium

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Acknowledgements Executive summary Why Belgium needs urgent reform to reignite productivity growth The 7-Point Action Plan Action 1: Promoting competition and easing regulatory restrictions in services Action 2: Improving the effectiveness of government support for R&D Action 3: Strengthening risk capital and reducing costs on risk-taking Action 4: Facilitating the job mobility of workers away from ailing firms Action 5: Supporting the creation of a new culture of lifelong learning Action 6: Giving firms and workers more freedom to set wages Action 7: Making the public finances more friendly to productivity growth Content of this report Overview of main findings and policy recommendations Belgium’s productivity slowdown: Long-lasting and increasingly more severe Fact 1: Productivity in Belgium: High, but growing more slowly than abroad Fact 2: Developments in productivity have been heterogeneous across sectors, firms and regions Fact 3: Low dynamism in the business landscape and people’s work careers A few cautionary words on this study The 7-Point Action Plan to reignite productivity growth Action 1: Promoting competition between businesses, especially in services Action 2: Improving the effectiveness of government support for R&D Action 3: Risk capital, risk attitudes and bankruptcy risk Action 4: Making it easier for workers to move from ailing to fast-growing firms Job protection for regular-contract workers against individual dismissals is light along several important dimensions By contrast, job protection for regular-contract workers against collective dismissals is stringent Action 5: Improving education and creating a new culture of lifelong learning Better education Better skill matching Better lifelong learning practices Action 6: Giving firms and workers more freedom to set wages The collective bargaining system Seniority-based pay Early retirement schemes Action 7: Making the public finances more friendly to productivity growth More and better public investment A tax system no longer hindering the resource reallocation process References Chapter 1: The productivity slowdown in Belgium: Main economy-wide and sectoral trends 1.1. Productivity in Belgium: High, but growing slowly Labour productivity in Belgium is high Labour productivity growth has been weak since the mid-1990s Estimating the total shortfall in labour productivity over the past two decades Labour productivity is highest in the Brussels-Capital Region and grows at the fastest pace in Flanders, leaving Wallonia behind Stagnant MFP has been the main cause of Belgium’s productivity slowdown 1.2. Main reasons for the productivity slowdown in Belgium Common reasons across OECD countries Some Belgian specificities 1.3. Sectoral analysis References Chapter 2: The firm dimension of productivity: The role of productivity dispersion and business dynamics 2.1. Introduction 2.2. Productivity dispersion and technology diffusion Evidence of productivity heterogeneity Diffusion of productivity gains: Catch-up of laggard firms and the role of policy 2.3. Business dynamics and labour market outcomes Trends in business dynamism Young firm activity Policy and start-up dynamics 2.4. Firm exit and zombie firms 2.5. An industry snapshot of performance indicators Indicator 1: Mark-ups Indicator 2: Entry rates Indicator 3: Exit rates Indicator 4: Zombie firms Indicator 5: Productivity dispersion References Annex 2.A. Data Annex 2.B. Methodology Chapter 3: The worker dimension of productivity: The role of wages and skills 3.1. Wages and productivity Why productivity matters for wages and wages matter for productivity Wage-productivity alignment: A look at sectors Wage-productivity alignment: A look at firms 3.2. Skills and productivity Imbalances between the labour supply and demand for occupations Occupational imbalances in Belgium are similar to the OECD average Shortages are concentrated in high-skilled occupations Automation is likely to exacerbate occupational imbalances The matching of skill demand and supply is related with productivity Differences in labour market matching emerge at the regional level Skill use in the workplace References