_1987-2018 247.2 75.9 3.0 5.9_ _15.1_ Source: Authors’ calculations based on data from DOSM A more detailed analysis of the three sub-periods from 1987 to 1997, 1997 to 2007, and 2007 to 2018 shows that the growth in output per capita for all three sub-periods can to a large extent be attributed to within-sector productivity growth. Over all three sub-periods, within-sector productivity growth consistently contributed more than 60 percent of overall growth in output per capita. The contribution of within-sector labor productivity to growth in output per capita was the highest in the decade from 1997 to 2007, when it contributed 103.2 percent of growth. Thich means that over this sub-period all other components combined had a negative effect on the growth in output per capita. This was due to a large negative contribution to the growth in output per capita from the change in the employment rate discussed above. The change in the demographic structure had a significant positive and between-sector labor productivity growth a small positive contribution.<sup>6</sup> In the decade from 1987 to 1997, Malaysia benefited the most from the reallocation of labor, both as a share of this component among all components of growth in output per capita and relative to its share in other subperiods (see Figure 16). During the decade from 1987 to 1997, structural change contributed RM 672.3 million or 6.8 percent of overall growth in output per capita. Thus, between 1987 and 1997 a significant amount of labor moved from relatively less productive to relatively more productive sectors. During the other sub-periods, the contribution of structural change to growth in output per capita. was smaller both in absolute terms and relative to other components. In the decade from 1997 to 2007, between-sector shifts only contributed 1.5 percent of growth in output per capita while between 2007 to 2018 its contribution was in fact negative. This means that between 2007 and 2018 labor on average shifted to less productive sectors. These findings are consistent with the evidence of Section 3.3 that over the entire observation period the reallocation of labor was largely uncorrelated with initial labor productivity and that this correlation was negative for the period from 2007 to 2018, resulting in a limited impact of structural change on the growth in output per capita.

**Figure 16: Contribution of different components to growth in output per capita, 1987-2018**

<!-- Start of picture text --> 1987-2018<br>2007-2018<br>1997-2007<br>1987-1997<br>-5,000 0 5,000 10,000 15,000 20,000 25,000 30,000<br>Contribution to growth in output per capita (2015 RM million)<br>Within-sector shifts Between-sector shifts Employment rate Demographic structure<br><!-- End of picture text --> Source: Authors’ calculations based on data from DOSM The contributions to output per capita of changes in the employment rate and the demographic structure vary significantly between the three sub-periods. In the decade from 1987 to 1997, the employment rate contributed

> 6 The relative contributions of the different components of output per capita growth can only be directly compared within the same sub-period, while their absolute contributions to output per capita growth will depend on the growth in this variable in each sub-period. For example, within-sector labor productivity growth induced average annual output per capita to grow by 5.1 percent between 1987 and 1997, compared to 2.4 percent between 1997 and 2007. Nevertheless, labor productivity growth accounted for a larger share of output per capita growth between 1997 and 2007 than between 1987 and 1997.

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