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Can productivity save global economic growth?

Rapid growth in productivity and the number of workers has helped to fuel global GDP growth over the past 50 years. As populations age and workforces shrink in many countries, how will the global economic growth fare? The McKinsey Global Institute (MGI) looks at this question in a new study of the G19 (the G20 minus the European Union) and Nigeria, which generate 80 percent of global GDP.

According to Global growth: Can productivity save the day in an aging world?, annual global employment growth could drop to 0.3 percent over the next 50 years from the 1.7 percent seen between 1964 and 2014. This means that, without faster productivity growth, global GDP growth could decline from 3.6 percent a year between 1964 and 2012 to only 2.1 percent over the next 50 years, a drop of 40 percent. In the United States, GDP growth would slow by about one third, while growth could decline by more than half in Canada, falling from 3.1 percent to 1.5 percent.

It’s not all bad news, though. In the report, MGI presents five sector case studies (agriculture, food processing, automotive, retail, and health care) that suggest annual productivity growth to 2025 could be boosted to 4 percent in the G19 and Nigeria. That’s more than the 3.3 percent needed to compensate for demographic trends. Three quarters of this potential growth comes from adoption of best practices and productivity improvements, while one quarter would come from technological, operational, and business innovations. The report also includes ten “enablers” that could potentially lift global GDP growth.

For those in economic and workforce development, this report highlights the need for businesses, governments and other stakeholders to drive productivity growth. Businesses will play a particularly important role in implementing best practices and innovation, as well as in attracting and retaining workers of all ages. Governments can create policies that increase workforce participation among women, young people, and those over 65 years old. The full report and an executive summary are available on the McKinsey Global Institute website.

The changing shape of modern cities

The geography of cities is changing. In today's modern city centres human talent has replaced industrial capital. Urban centres have undergone a large de-industrialization over the past half century to become hubs of innovation, networking, and ideas that attract a young, talented "creative class". The Martin Prosperity Institute recently explored this changing urban landscape in the study The Divided City and the Shape of the New Metropolis.

The study looked at how the creative, service, and working classes are geographically divided throughout 12 major American cities (including New York, Miami, Dallas, Detroit, and Los Angeles) and how this division is creating a new type of metropolis. The results of the study indicate a clear pattern of class division across each of the 12 metropolitan areas, with the affluent creative class occupying the most economically functional and desirable locations in the core of the city. As the ranks of knowledge workers grow in these urban centres, new cultural amenities such as restaurants, music venues, and galleries continue to replace former industrial strongholds, complementing other key location factors that appeal to the creative class like proximity to transit, clustering around knowledge institutions (i.e. universities and research facilities), and natural amenities.

The locations of the service and working classes in the modern city were also tracked in the study and were found to have shifted away from the core of cities. Now the service class either surrounds the creative class, concentrating in areas of urban disadvantage, or has moved to the suburbs.

While this report focuses on general trends in 12 sample American cities (an MPI Insight on some Canadian cities is available), and there are still large creative class clusters and complexes in the suburbs and concentrations of poverty in many city centres, it does offer some insights into how demographic trends, urbanization and economic shifts are reshaping cities.