13. Productivity - labor and capital efficiency

Here the efficiency of capital and labor is increased, which leads to a fall in the demand for both factors. The experiment produces a general reduction in production costs, therefore, a long run gain in foreign trade and domestic production.

The efficiency of labor and capital is permanently raised by 1 percent. (See experiment)

Table 13a. The effect of a permanent increase in labor and capital efficiency

		1. yr	2. yr	3. yr	4. yr	5. yr	10. yr	15. yr	20. yr	25. yr	30. yr
		Million 2010-Dkr.
Priv. consumption	fCp	1203	1271	1027	1238	1662	4182	6652	8999	10899	12117
Pub. consumption	fCo	5824	5885	5962	6028	6086	6390	6800	7313	7909	8571
Investment	fI	-1847	-2675	-1450	-251	702	3351	4200	4101	3597	3014
Export	fE	2940	4910	6730	8551	10278	17212	20290	20137	18582	17349
Import	fM	62	75	824	1738	2581	5883	7980	8993	9239	9124
GDP	fY	7855	9039	11192	13622	16024	25238	29993	31633	31870	32078
		1000 Persons
Employment	Q	-9,33	-10,09	-9,08	-7,31	-5,27	3,43	6,51	5,35	2,59	0,08
Unemployment	Ul	5,44	5,11	4,55	3,67	2,66	-1,76	-3,39	-2,82	-1,39	-0,07
		Percent of GDP
Pub. budget balance	Tfn_o/Y	-0,18	-0,18	-0,13	-0,09	-0,05	0,13	0,19	0,16	0,12	0,07
Priv. saving surplus	Tfn_hc/Y	0,10	0,12	0,08	0,04	0,00	-0,09	-0,08	-0,05	-0,02	0,00
Balance of payments	Enl/Y	-0,07	-0,06	-0,05	-0,05	-0,04	0,05	0,11	0,12	0,09	0,07
Foreign receivables	Wnnb_e/Y	0,07	0,08	0,05	0,02	-0,02	-0,01	0,28	0,65	0,96	1,16
Bond debt	Wbd_os_z/Y	0,23	0,43	0,56	0,64	0,67	0,24	-0,59	-1,30	-1,70	-1,82
		Percent
Capital intensity	fKn/fX	-0,37	-0,48	-0,60	-0,71	-0,79	-0,97	-0,90	-0,73	-0,58	-0,48
Labour intensity	hq/fX	-0,67	-0,76	-0,83	-0,88	-0,91	-0,95	-0,94	-0,94	-0,95	-0,95
User cost	uim	-0,36	-0,42	-0,47	-0,53	-0,57	-0,66	-0,57	-0,43	-0,31	-0,25
Wage	lna	-0,25	-0,41	-0,55	-0,68	-0,78	-0,86	-0,50	-0,07	0,23	0,34
Consumption price	pcp	-0,37	-0,47	-0,56	-0,63	-0,70	-0,87	-0,83	-0,69	-0,56	-0,49
Terms of trade	bpe	-0,29	-0,36	-0,42	-0,48	-0,53	-0,63	-0,58	-0,47	-0,38	-0,33
		Percentage-point
Consumption ratio	bcp	0,02	0,04	0,02	0,01	0,01	0,03	0,03	0,03	0,04	0,06
Wage share	byw	-0,13	-0,19	-0,24	-0,27	-0,28	-0,22	-0,08	0,02	0,06	0,05

(See details)

Higher efficiency of labor and capital means that both factor inputs can be reduced, consequently investment and employment fall in the short term. The fall, particularly in machinery investment, reduces imports and depreciation, which increases gross operating surplus. As factors' efficiency increases, prices fall and net exports increase without relying on change in wages. Higher net exports increase production and employment. This offsets the initial fall in employment created by the increase in labor efficiency.

The initial fall in employment pushes wages and prices downward. This improves competitiveness and induce exports to rise even more. As in the previous experiment, the combined effect of higher efficiency and lower wages means that the short-term decrease in factor utilization disappears relatively quickly and the initial negative impact on employment is reversed quickly. In the long term, capital intensity and labor intensity fall by approximately 1 percent, excluding the housing sector.

There is a small positive impact on private consumption in the long run, due to the positive impact on real disposable income, which is stimulated as the higher productivity increases the real income of transfer recipients. The public budget improves in the long term.

Figure 13a. The effect of a permanent increase in labor and capital efficiency

The experiment in section A is repeated accompanied by improved export performance. (See experiment)

Table 13b. The effect of a permanent increase in labor and capital efficiency, with supply effects

		1. yr	2. yr	3. yr	4. yr	5. yr	10. yr	15. yr	20. yr	25. yr	30. yr
		Million 2010-Dkr.
Priv. consumption	fCp	1206	1341	1224	1614	2261	6468	11109	15289	18025	18900
Pub. consumption	fCo	5823	5877	5943	5997	6040	6251	6586	7084	7727	8469
Investment	fI	-1763	-2398	-906	550	1780	5806	7403	7068	5589	3842
Export	fE	3584	6167	8661	11230	13738	24188	28279	26059	20835	16537
Import	fM	681	1127	2422	3935	5414	12066	16563	18197	17505	15798
GDP	fY	7966	9587	12257	15264	18297	30674	36923	37512	34972	32291
		1000 Persons
Employment	Q	-9,26	-9,65	-8,15	-5,82	-3,17	8,44	12,20	8,98	2,82	-2,55
Unemployment	Ul	5,40	4,86	4,04	2,87	1,54	-4,39	-6,39	-4,74	-1,53	1,30
		Percent of GDP
Pub. budget balance	Tfn_o/Y	-0,18	-0,18	-0,11	-0,06	0,00	0,25	0,33	0,28	0,18	0,08
Priv. saving surplus	Tfn_hc/Y	0,10	0,12	0,07	0,03	-0,01	-0,13	-0,13	-0,09	-0,05	-0,02
Balance of payments	Enl/Y	-0,07	-0,05	-0,04	-0,03	-0,01	0,12	0,20	0,18	0,12	0,06
Foreign receivables	Wnnb_e/Y	0,06	0,07	0,04	0,01	-0,01	0,16	0,74	1,44	1,97	2,26
Bond debt	Wbd_os_z/Y	0,23	0,42	0,52	0,55	0,52	-0,37	-1,79	-2,96	-3,50	-3,47
		Percent
Capital intensity	fKn/fX	-0,39	-0,52	-0,66	-0,79	-0,90	-1,12	-0,97	-0,65	-0,35	-0,18
Labour intensity	hq/fX	-0,69	-0,79	-0,87	-0,93	-0,97	-1,04	-1,05	-1,04	-1,03	-1,03
User cost	uim	-0,36	-0,42	-0,48	-0,53	-0,57	-0,60	-0,40	-0,12	0,07	0,13
Wage	lna	-0,25	-0,41	-0,54	-0,64	-0,72	-0,53	0,24	1,04	1,51	1,53
Consumption price	pcp	-0,37	-0,47	-0,55	-0,62	-0,68	-0,76	-0,55	-0,25	-0,01	0,08
Terms of trade	bpe	-0,29	-0,36	-0,42	-0,47	-0,51	-0,55	-0,39	-0,16	0,00	0,04
		Percentage-point
Consumption ratio	bcp	0,02	0,03	0,01	-0,01	-0,01	0,01	0,02	0,05	0,09	0,13
Wage share	byw	-0,13	-0,20	-0,25	-0,27	-0,28	-0,17	0,05	0,21	0,25	0,20

(See details)

Figure 13b. The effect of a permanent increase in labor and capital efficiency, with supply effects

The experiment in section B is repeated, where the income tax rates are reduced to balance the public budget. (See experiment)

Table 13c. The effect of a permanent increase in labor and capital efficiency, with supply effects, balanced budget

		1. yr	2. yr	3. yr	4. yr	5. yr	10. yr	15. yr	20. yr	25. yr	30. yr
		Million 2010-Dkr.
Priv. consumption	fCp	1387	1398	1208	1642	2456	9041	17228	22956	23124	18419
Pub. consumption	fCo	3379	3100	3467	4167	5037	9515	11189	9302	5965	4114
Investment	fI	-3066	-4240	-2126	97	2053	8915	11013	8216	2900	-1249
Export	fE	3526	6158	8820	11642	14448	25546	26434	18176	9080	7421
Import	fM	-227	-177	1387	3370	5408	15259	21193	20455	14839	9323
GDP	fY	5286	6343	9774	14032	18537	37848	44911	38631	26755	19784
		1000 Persons
Employment	Q	-13,96	-15,00	-12,38	-8,20	-3,37	17,58	21,00	8,39	-7,84	-15,92
Unemployment	Ul	8,14	7,59	6,10	3,98	1,54	-9,17	-10,98	-4,44	4,04	8,30
		Percent of GDP
Pub. budget balance	Tfn_o/Y	-0,14	-0,14	-0,09	-0,04	0,00	0,20	0,23	0,12	-0,03	-0,11
Priv. saving surplus	Tfn_hc/Y	0,10	0,13	0,08	0,03	-0,02	-0,15	-0,17	-0,13	-0,06	0,00
Balance of payments	Enl/Y	-0,04	0,00	-0,01	-0,01	-0,01	0,04	0,05	-0,02	-0,10	-0,11
Foreign receivables	Wnnb_e/Y	0,21	0,30	0,29	0,23	0,16	-0,17	-0,26	-0,20	-0,14	-0,07
Bond debt	Wbd_os_z/Y	0,26	0,44	0,52	0,53	0,48	-0,43	-1,66	-2,29	-2,04	-1,24
		Percent
Capital intensity	fKn/fX	-0,29	-0,42	-0,62	-0,80	-0,96	-1,30	-0,95	-0,30	0,18	0,21
Labour intensity	hq/fX	-0,73	-0,84	-0,92	-0,96	-0,99	-1,00	-0,98	-1,01	-1,06	-1,09
User cost	uim	-0,42	-0,53	-0,62	-0,68	-0,73	-0,61	-0,12	0,32	0,39	0,11
Wage	lna	-0,29	-0,52	-0,72	-0,87	-0,95	-0,41	1,08	2,24	2,29	1,38
Consumption price	pcp	-0,38	-0,51	-0,61	-0,70	-0,76	-0,74	-0,27	0,22	0,40	0,18
Terms of trade	bpe	-0,30	-0,39	-0,47	-0,53	-0,57	-0,53	-0,17	0,17	0,26	0,06
		Percentage-point
Consumption ratio	bcp	0,04	0,05	0,02	0,00	-0,01	-0,02	0,03	0,15	0,25	0,25
Wage share	byw	-0,17	-0,25	-0,31	-0,34	-0,35	-0,10	0,28	0,45	0,31	0,03

(See details)

Figure 13c. The effect of a permanent increase in labor and capital efficiency, balanced budget