Sectoral Reallocation of Labour as a Limit on Total Factor Productivity Growth in Slovenia

This article analyses the impact of sectoral reallocation of labour on the growth of total factor productivity in the Slovenian economy. Using the estimation of the standardised and structural components of labour productivity growth, and the stochastic frontier growth accounting framework, we can establish three main conclusions. First, failure to reallocate labour from less toward more productive industries is significantly impeding the growth of total factor productivity in Slovenia and hence reducing its foreign competitiveness. Second, classical economic policy measures aimed at accelerating growth of total factor productivity, such as increased competition among firms on the basis of trade liberalisation and the inflow of foreign direct investment, are not appropriate. Third, controversially, there is no short-run policy measure that can be undertaken with the aim of reallocating labour among industries, since it depends upon the nature of the individual's acquired level of education. What remains is education policy that will stimulate permanent education and provide workers with the skills that enable them to respond rapidly to the changes in the national production structure throughout the period of the individual's active employment.