On Friday 19 January 2024, representatives of the National Productivity Council (Conseil national de la productivité - CNP) presented and delivered their 2023-2024 annual report to Luxembourg’s Minister of the Economy, SME, Energy and Tourism, Lex Delles.

The report highlighted the importance of productivity to strengthen the competitiveness of companies, support the evolution of real wages, perpetuate the socio-economic model and succeed in the ecological transition of the economy.

CNP President Serge Allegrezza discussed different facets of productivity and recalled that productivity is an essential concept capable of shedding light on a series of major economic, social and environmental policy questions.

In its annual report, entitled “Productivity – a driver of competitiveness”, the CNP noted that the mediocre evolution of labour productivity has persisted for more than a decade at the aggregate level of the national economy. In addition, the nominal unit wage cost, therefore the cost of labour corrected for productivity, is growing faster in Luxembourg than in its neighbouring countries and the eurozone as a whole, thus leading to a loss of the Grand Duchy's cost competitiveness. Behind this development at the level of the national economy, however, hide significant sectoral disparities.

The CNP thus called for differentiated policies to boost productivity; it involves combining actions in favour of the general determinants of productivity with the specific needs of different branches of activity. To increase productivity, research and development (R&D), innovation and digitalisation, strengthening and reskilling of the workforce as well as the continued relaxation of the regulatory framework remained areas of focus and priority actions according to CNP. In addition, the CNP found that efforts are necessary to promote the integration of technological progress and the adoption of best practices in companies. The CNP encouraged all actors, private and public, to pursue an ambitious investment policy, with the deepening of capital generally having a positive impact on labour productivity and economic growth.

The CNP regularly traces the evolution of resource and energy productivity, with a view to sustainable development. Analyses showed that Luxembourg has not yet succeeded in decoupling its domestic consumption of materials from its economic growth over the last decade. However, the positive development lies in energy productivity, where Luxembourg has successfully decoupled energy consumption from economic growth, the CNP noted. Despite this achievement, the proportion of renewable energies in Luxembourg's gross final energy consumption remains low. Consequently, Luxembourg continues to exhibit a high intensity of greenhouse gas emissions, although the country has demonstrated a declining trend over the last several years.

As every year, the report included a series of applied research studies on productivity, carried out by STATEC on behalf of the CNP. The first contribution presents the latest results of the LuxKLEMS project which makes it possible to examine the sources of the evolution of productivity. It appears that the stagnation of labour productivity was linked to weakening total factor productivity, meaning that the efficiency with which labour and capital are jointly used in the production process has not increased. In more detail, the analysis revealed that the intensity of the labour factor rather determines the evolution of labour productivity in service activities, while technological progress is a predominant source of productivity growth in the sector manufacturer.

The second study analysed the accumulation and composition of intangible capital in the market economy, as well as its contribution to the evolution of productivity. In international comparison, the share of intangible capital in total capital is relatively low in Luxembourg, as is its average contribution to the evolution of labour productivity. Recent trends, however, indicated a growing importance of intangible capital in the evolution of productivity and therefore a potential for improving productivity through investments in intangible assets.

The third contribution analysed the supposedly positive relationship between productivity and the quality of business management. The study examined the link between company performance and two particular managerial practices, namely the regular monitoring of company performance indicators and the evaluation of individual employee performance. Preliminary results suggested that companies that attach more importance to these managerial practices tend to have higher productivity.

The fourth and final study focused on innovation, which is a key determinant of productivity. The analysis found that national innovation systems play an important role in the effective production of innovations. This result suggested that countries can strengthen economic growth by strengthening their national innovation system.

The CNP's 2022-23 annual report will be sent to the Economic and Social Council (ESC) for its opinion and notified to the European Commission.

The report can be downloaded from the following website: https://odc.gouvernement.lu/dam-assets/domaines/cnp/cnp-rapport-2022-2023.pdf.