The evolution of aggregate productivity reflects not only different sectoral developments, but especially very distinct behaviours along the productivity and the employment distributions. The evolution of aggregate productivity results from the evolution of the variable in each of the firms individually considered, but it is also determined by the trajectories of firms with different weights in employment, as well as by the reallocation of labour between firms with different productivity levels.

Over the 2014-2018 period, aggregate productivity varied by 0.6 per cent, on annual average. This figure can be decomposed in a positive contribution (5.5 percentage points) from the productivity variation of incumbent firms individually considered, i.e., excluding the impact of the allocation of labour between incumbent firms, and a negative contribution (-4.8 percentage points) from the interaction between productivity and employment. The latter structure effect resulted from a relatively greater change in productivity in firms with a lower share of employment and a decline in the share in employment of the most productive firms. In turn, the contribution of business demography (entry and exit of firms from the market) was small, corresponding to -0.1 percentage points. These results are qualitatively similar across the different sectors of activity and underline the importance of promoting an efficient allocation of resources in the economy, through the well-functioning of the markets and public policies.

For more details see Special issue “Dynamics of productivity per worker in Portuguese firms over the 2014-19 period”, published in the Economic Bulletin of Banco de Portugal, December 2021.

Prepared by João Amador, Fernando Martins, Manuel Coutinho Pereira, Ana Catarina Pimenta and Domingos Seward. The analyses, opinions and findings expressed above represent the views of the authors and not necessarily those of Banco de Portugal or the Eurosystem.

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