CENTRAL AMERICA – Low productivity in Central American economies is the barrier which needs to be overcome if we want to grow in a sustainable way.
A study prepared by the Nicaraguan Foundation for Economic and Social Development (Funides) analyzes the evolution of productivity in different production factors in Nicaragua, Costa Rica, El Salvador, Guatemala and Honduras.
According to the study, “… average productivity of a Costa Rican worker is $13,000 a year, followed by Salvadoran employees with a productivity of $7,700 and Guatemalans with $6,000. Honduras has the second lowest productivity in the region with an average of $4,000 per year per worker. ”
The report notes that between 1991 and 2013 average labor productivity grew by only 1.7% in Costa Rica, 1.4% in El Salvador, 0.6% in Nicaragua and Guatemala and 0.4% in Honduras. ”
Read the full study by Funides entitled “Growth, Productivity, Wages and Cost of Living in Nicaragua.”
I skimmed the report (lots of charts and graphs) but I’m not sure what if anything to make of it.
Productivity is usually a function of capital investment, not anything like how hard people work. The greater the capital investment (e.g. in machines that speed up production) the higher the productivity. Not surprisingly, the productivity differences of the various countries are related to the differences in capital investments.
Worse, low-wage workers attract companies that choose not to invest in productivity-enhancing machines. Often a company located in a high-wage country faces the choice between investing in productivity-enchancing machines or moving to a lower-wage country where it doesn’t have to make the investment. When companies choose to locate in a low-wage country, they are usually choosing lower productivity over higher capital investments. It’s therefore hardly surprising that that productivity remains low in low-wage countries.
Anyway, sure, productivity rates are an issue, but to focus on them is like focusing on how short a distance your car goes when it’s out of gas. Yeah, a car that’s out of gas doesn’t go very far, but the lack of gas is the problem. Capital investments are for productivity what gas is to car speeds. The more that is poured in, the farther it goes.