The Productivity Measurement Gap: Why GDP Per Hour Worked No Longer Tells the Full Story

Productivity is the single most important determinant of long-term living standards. Economists, policymakers, and investors all agree on this. What they agree on far less is whether we are measuring it correctly.

The standard metric — GDP per hour worked — was designed for an industrial economy where output was physical, capital was tangible, and the relationship between inputs and outputs was relatively transparent. Factories bought machines, hired workers, and produced goods you could weigh and count. In that world, labour productivity was a reliable signal.

That world no longer exists for most of the advanced economies.

The Structural Shift That Metrics Have Not Caught

The OECD's 2025 Compendium of Productivity Indicators confirms what many of us have suspected for years: productivity growth across member countries has been subdued, averaging just 0.6% in 2023 after a 0.2% decline in 2022. In the euro area, labour productivity fell by 0.9% in 2023 — the steepest drop since the global financial crisis.

But these figures describe a world through a lens ground in the 1950s. Consider what they exclude or poorly capture:

Software and algorithms that transform operational efficiency but are often expensed rather than capitalised. Proprietary data assets that companies use to train models, optimise supply chains, and personalise services — assets that appear nowhere in national accounts as productive capital. Organisational capital — the management practices, process innovations, and institutional knowledge that distinguish high-performing firms from laggards. Brand equity and customer relationships that create pricing power and reduce customer acquisition costs over decades.

The System of National Accounts (SNA) has been slowly expanding its treatment of intangibles. The 2008 revision brought R&D into the capital boundary. The forthcoming 2025 SNA revision will add data assets and provide clearer treatment of cloud services and AI. These are welcome steps, but they remain incremental adjustments to a framework that still treats the majority of intangible investment as intermediate consumption — a cost, not an asset.

Why This Matters Beyond Academic Debate

This is not an abstract measurement problem. It has concrete consequences across three domains.

First, policy is being set on incomplete data. If productivity growth is understated because we are not capturing the output enabled by intangible investments, then governments may be diagnosing stagnation where there is actually transformation. The UK's so-called "productivity puzzle" — the persistent gap between pre-2008 trend growth and actual performance — may be partly a measurement puzzle. The Productivity Institute estimates the UK's capital gap at around £2 trillion, but that figure itself depends on how comprehensively we measure capital.

Second, firms are being valued incorrectly. In public markets, the gap between book value and market capitalisation has widened dramatically over the past two decades. Intangible-intensive firms routinely trade at multiples that make no sense if you only look at their balance sheets. In private markets, the problem is worse — valuations rely on financial statements that structurally undercount the assets that actually generate returns.

Third, investment decisions are being distorted. When intangible investments are treated as expenses rather than capital formation, they suppress reported earnings in the period they are made. This creates a systematic bias against the very investments that drive long-term productivity: R&D, training, software development, and data infrastructure.

The Scale of What We Are Missing

Research presented at the OECD's Global Forum on Productivity in 2025 quantified some of this gap. The analysis found that one percentage point of additional intangible capital growth is associated with approximately 0.17 percentage points of increase in total factor productivity (TFP) growth. But the relationship has weakened in recent years, suggesting either that technological diffusion is slowing or — more likely — that our measurement of both inputs and outputs is becoming less reliable as the economy becomes more intangible-intensive.

The divergence between the EU and the US is instructive. US firms invest significantly more in intangibles, particularly in IT services and high-skill services sectors. Europe's intangible investment is concentrated in "middle-tech" manufacturing. The productivity gap between the two economies tracks this divergence closely.

At the firm level, studies consistently find that intangible capital accounts for up to two-thirds of firm valuation when measured comprehensively. The remaining third is split between physical capital and market power. This means that traditional productivity metrics, which are anchored to tangible capital and measured output, are systematically blind to the majority of what makes firms productive.

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What Needs to Change

The measurement gap will not close itself. Three things need to happen.

National statistical agencies need to accelerate their adoption of expanded intangible asset categories. The 2025 SNA revision is a step forward, but implementation across countries will take years. The ONS, Eurostat, and their counterparts need dedicated funding and technical capacity to bring experimental intangible statistics into mainstream productivity accounts.

Firms and investors need to develop and adopt standardised frameworks for reporting intangible capital. The accounting profession's reliance on GAAP and IFRS frameworks that treat most intangibles as expenses is no longer fit for purpose. Initiatives like the ISSB's work on sustainability and intangible disclosure are relevant, but the gap between what matters for productivity and what gets reported remains vast.

Researchers and policymakers need to treat the measurement gap as a first-order problem, not a footnote. Every productivity analysis, every policy paper, every investment thesis that relies on standard metrics without acknowledging what they miss is building on incomplete foundations.

At Opagio, we work with businesses to identify, measure, and value the intangible assets that drive their performance. The productivity measurement gap is not just a macroeconomic curiosity — it is a practical problem that affects how companies are managed, how investments are evaluated, and how economies are governed. Until we close it, we are navigating the modern economy with an outdated map.

David Stroll is CTO of Opagio, which specialises in the identification and valuation of intangible business assets. He brings 40 years of experience in strategy, technical systems delivery, and macro-economic theory (FTSE 250).