Motivation andFramework

1. Is there a modern productivity paradox?

2. Is the productivity slowdown related to lack of digital diffusion?

Q

Big Techday 12, 7. Juni 2019

Reflections on missing productivitygrowth in an era of digital

transformation

By Christina Timiliotis By Christina Timiliotis

Productivity growth has slowed down in major economies

Source: Productivity Statistics, OECD Stat.

GDP per hour worked, annual change

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

France Germany Italy Japan United Kingdom United States

1971-1980 1981-1990 1991-2000 2001-2007 2010-2017

“You can see the computer age everywhere but in the productivity statistics.”

Robert Solow, 1987

Techno-optimists

The world is in the middle of a technology-driven renaissance.

Techno-pessimists

Few firms may be doing great, but the IT revolution has run out of steam and low hanging fruits have been picked.

The great (productivity) divergence

Note: Multifactor productivity (MFP) at the productivity frontier and for the average non-frontier firm (2009=100); Source: Andrews et al. (2016)

100

105

110

115

120

2009 2010 2011 2012 2013 2014 2015

Firms below the frontier

Frontier(top 5%)

100

105

110

115

120

2009 2010 2011 2012 2013 2014 2015

Firms below the frontier

Frontier(top 5%)

Digital industries

Less digital industries

Big data 33 %8%

Cloud 71%19%

Supply Chain Management 41%

10%

Digital adoption is uneven across countries

Note: for medium sized firms. Source: OECD Stat. ICT adoption of businesses.

Big data 34 % 19% 11 %

Cloud 59% 41 % 27 %

Supply Chain Management

41% 24% 13%

Large firms (250+) Medium sized firms (50-249)

Small firms (10-49)

Digital adoption lags behind in small firms

Source: OECD Stat. ICT adoption of businesses.

Platforms are developing fast, but unevenly

France, Italy, Spain, UK and US

Belgium, Germany, Hungary, Poland and Sweden

Source: Bailin et al. (2019[19]).

Online platforms can enhance the productivity of service firms

Annual gain in productivity of the average firm in selected service industries associated

with online platform development in the hotel, restaurant, taxi and retail sector

Source: Bailin et al. (2019[19]).

As do general digital technologies, but more productive firms benefit reap greater benefits

0

0.5

1

1.5

2

2.5

High-speed broadband Enterprise ResourcePlanning

Customer RelationshipManagement

Cloud Computing

%

Firm-level increase in productivity from a 10 percentage point increase in digital adoption

Laggards FrontierMedian

Skills are crucial in a digitalized economy

Organisational capital

Skilled labour

Allocation of talent

Can “Americans do IT better”?

Meritocracy still prevents the hiring of good managers, especially in Southern Europe

Source: Pellegrino and Zingales (2017)

A higher score indicates that merit prevails over loyalty

0

10

20

30

40

50

60

70

80

90

100

New

Zea

lan

d

Swed

en

Net

her

lan

ds

No

rway

Fin

lan

d

Au

stra

lia

Flan

der

s…

Den

mar

k

Can

ada

Ger

man

y

Engl

and

(U

K)

Jap

an

Un

ited

Sta

tes

Au

stri

a

Cze

ch R

epu

blic

No

rth

ern

…

Ko

rea

Isra

el

Esto

nia

Slo

ven

ia

Slo

vak

Re

pu

blic

Irel

and

Lith

uan

ia

Gre

ece

Po

lan

d

Ch

ile

Turk

ey

Fran

ce

Spai

n

Ital

y

No digital skills Limited digital skills% of 16-65 years population

Many adults lack digital skills in OECD countries Share of adults lacking digital skills (2015)

Effects of boosting skills on digitalisationI. Increase in digital adoption rate from

increasing the share of workers using HPWP to sample maximum (DNK)

Note: Differential impact between industries with high and low knowledge intensity

0

2

4

6

8

10

12

EnterpriseResourcePlanning

CustomerRelationshipManagement

Cloud Computing Cloud Computing(high)

%Gap 1st and 3rd quartiles Average

Lowest (FIN) Highest (GRC)

0

2

4

6

8

10

12

14

Enterprise ResourcePlanning

Customer RelationshipManagement

Cloud Computing Cloud Computing(complex)

%

1st quartile Average

Lowest (NLD) Highest (POL)

II. Increase in digital adoption rate from reducing the share of workers with no ICT skills

(SWE)

Skill shortages reduce gains from a mix of all technologies in low productive firms

0

20

40

60

80

100

industries without skill shortages industries with skill shortages

Productivity gain in most productive firms without shortages = 100

Do you prepare your workforce for the future?

0

25

50

75

100

0

10

20

30

40

SVK

PO

L

GR

C

LTU

HU

N

ITA

DEU BEL IR

L

CZE

PR

T

ESP

SVN

GB

R

AU

T

EST

LUX

FRA

NLD

NO

R

DN

K

FIN

SWE

% of firms% of adult population (25-64)

Participation in adult learning (lhs)

% of enterprises providing continuing vocational training (rhs)

The marginal effects of training on adoption are greater for low-skilled workers

0

0.5

1

1.5

2

2.5

3

3.5

Customer Relationship Management Cloud Computing

%

Low skilled Low skilled

High skilled High skilled

Note: The differential impact of training provided to high and low skilled workers on the percentage of firms adopting CRM and cloud computing

systems

What can be done about this?

Lifelong learning

Involve all stakeholders

Adapt school systems

Raise awareness

Q What about regulations?

The regulatory environment should promote the efficient reallocation of resources

-6

-5

-4

-3

-2

-1

0

1

19

98

20

00

20

02

20

04

20

06

20

08

20

10

20

12

20

14

Percentage points(1998 = 0)

-6

-5

-4

-3

-2

-1

0

1

1998

2000

2002

2004

2006

2008

2010

2012

2014

Percentage points(1998 = 0)

Entry rates Exit rates

Digital intensive sectors Other sectors

Source: Calvino and Criscuolo (2019)

The rise of zombie firms

Promoting the efficient reallocation of resources in 3 steps

Facilitating a smooth exit of the least productive firms

Reducing barriers to entry and growth of young firms

Enabling fluid movements of labour and capital from declining to growing firms.

Policy-makers have a range of tools to increase productivity through digital adoption

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

Upgrading skills (technical and managerial) Reducing regulatory barriers to competition andreallocation

Effect on firm productivity (through digital adoption) of closing half of the gap with best performing countries in a range of areas. Average OECD country, effect after 3 years

Source: Sorbe et al. (2019)

Digitalisation is a mixed blessing for competition

Market power can reflect a legitimate rent for past innovation and even be

the sign of healthy competition

if too entrenched – also allow firms to use strategic

patenting or buy smaller innovative firms to stifle

competition , thus undermining innovation

BUT

Scale without mass

Low marginal costs

Strong multi-sided networks

0

2

4

6

8

10

12

Index 1990 = 1

AI-related patents All patents

And Artificial Intelligence?

In sum, all hope is not lost!

• Participation in training – especially of low-skilled workers – and its quality, as well as promoting good cognitive, organisational and managerial skills;

• The efficient reallocation of labour and capital across firms and industries by reducing administrative burdens on start-ups, facilitating job transitions and improving the efficiency of insolvency regimes

…but both, governments and private actors must take an active role in supporting the adoption of digital technologies and promoting their efficient use

Website:

http://www.oecd.org/economy/growth/digitalisation-productivity-and-inclusiveness

Contact:

Christina.Timiliotis@oecd.org

Thank you