The break from the years prior to the financial crisis is clear. Growth is being supported by immigration and employment growth, and not by increased productivity. There are two factors that determine value added in a population. One is labour input and the other is labour productivity. I will look at some aspects of each of these factors. Chart 15: Employment ratio is high, but hours worked are low The employment ratio is high in Norway. Labour force participation is high and most jobseekers find work. Employment has increased rapidly since the mid-1990s. An expansionary monetary policy and additional government expenditure of oil money buoyed activity and employment through the financial crisis. Measured by hours worked, labour input has also risen, albeit not to the same extent. On average, the working day is shrinking. The employment ratio adjusted for working hours provides an expression of average labour input per hour worked among the active population. In this chart, hourly labour input is measured in relation to usual hours of work per year of 1 750 hours. In 2011, the average number of hours worked in Norway came to about 60 percent of usual hours of work per year. By this measure, the employment ratio was higher in Greece than in Norway up to the time when Greece was fully hit by the crisis. Total labour input is considerably higher in Sweden, Finland and the US than in Norway. We work less than the OECD average.
Whilst remote working only accounted for around 8% of total hours worked in 2019, this increased sharply during the pandemic, reaching 43% in 2021 Q1. Moreover, firms expected remote working to persist into 2022 and beyond, with around 20% of hours expected to be worked from home. 1  5  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  5  has been a negative impact on productivity resulting from measures taken to contain Covid. Firms in the DMP estimated that Covid has increased average unit costs by around 7% in the second and third quarters of last year. They expected this impact to reduce to 5% by the second quarter of this year, with a more persistent negative impact of 2%. All of this reflects new costs – for PPE, screens etc., and the impact on costs from social distancing reducing capacity. However, this negative effect from higher unit costs was offset for DMP members by what is often called a batting average effect – namely that the impact of Covid has shifted the composition of activity towards higher productivity firms. But this means that Covid has seen lower total output and higher average labour productivity. This is consistent with the greater than normal supply side impact of the Covid shock. But this is not creative destruction in a Schumpeterian sense; in other words that raises output through competition and innovation. Rather, this is a form of destruction that lowers total output and welfare.