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[ 1 ]
Improving EU productivityThe role of ICT, human capital and intangible assets
Matilde MasUniversitat de València and Ivie
I Workshop KIISKnowledge, Innovation and Internalization Strategies
Facultad d´Economia, Universitat de ValenciaValencia, 19th-20th November
This project has received funding from the European Union’s Seventh Framework Programme for research, technological development and demonstration under grant agreement No. 612774
[ 2 ]
Labour Productivity growth is key for per capita income growth“Productivity isn’t everything, but in the long run it is almost everything”.- Paul Krugman
y = 1,01x + 0,21R² = 0,90
‐1
0
1
2
3
4
5
6
‐1 0 1 2 3 4 5 6Per c
apita
income grow
th (pe
rcen
tage
), 19
50‐201
4
Labour productivity growth (percentage), 1950‐2014
Figure 1. Labour productivity and per capita income, 1950-2014
Source: Total Economy Database, May 2015 (TCB)
[ 3 ]
Objetive To revise the behaviour followed by EU productivity
From an international perspective, comparing the EU with 12 leading
economies of the world
With a high level of industry disaggregation
Focusing on the most recent period 2006-2013
Making use of the highly disaggregated PREDICT database
Searching for potential factors explaining its poor performance:
The importance of the ICT industries Intangible investment R&D Human Capital Other intangibles (Organizational Capital and Training)
[ 4 ]
PREDICT and DICTA ProjectsPREDICT:Period: 2006-2012Variables: GVA; Employment (nº of Workers); Labour Productivity; BERD; R&D Personnel; R&D ResearchersCountries: EU-28, US, Norway, Switzerland, Japan, China, India, Korea, Taiwan, Australia, Canada, Russia and BrazilLevel of Disaggregation (for details see below)
Focused on: ICT industries (OECD (2007) Definition)Non-ICT Industries but R&D Intensive
Two ICT industries definition: Comprehensive and Operational (excludes Trade)
DICTA:Period: 1995-2015Variables: same than PREDICT but including also the variable hours workedCountries: same than PREDICTLevel of Disaggregation (for details see below)
Same than PREDICT but:Much higher level of ICT service industries disaggregationIt also Includs: Media and Content industries
Retail sale via mail order hours or via InternetTwo ICT industries definition: Comprehensive and Operational (excludes Trade)
[ 5 ]
Industry Disaggregation. PREDICT 2015NACE Rev.2. Description
a) ICT sector (comprehensive definition)261‐264, 268, 465, 582, 61, 62, 631, 951 A. ICT Total [A=B+C]261‐264, 268 B. ICT manufacturing industries [B=1 to 5]261 [1] Manufacture of electronic components and boards262 [2] Manufacture of computers and peripheral equipment263 [3] Manufacture of communication equipment264 [4] Manufacture of consumer electronics268 [5] Manufacture of magnetic and optical media465, 582, 61, 62, 631, 951 C. ICT total services [C=C1+C2]465 C.1. ICT trade industries [C1=6+7]4651 [6] Wholesale of computers, computer peripheral equipment and software4652 [7] Wholesale of electronic and telecommunications equipment and parts582, 61, 62, 631, 951 C.2. ICT services industries [C2=8 to 12]582 [8] Software publishing61 [9] Telecommunications62 [10] Computer programming, consultancy and related activities631 [11] Data processing, hosting and related activities; web portals951 [12] Repair of computers and communication equipmentTOT D. Total (ICT and non‐ICT)b) ICT sector (operational definition)261‐264, 61, 582, 62, 631, 951 A'. ICT Total (operational) [A'=B'+C']261‐264 B'. ICT manufacturing industries (operational) [B'=1 to 4]261 [1] Manufacture of electronic components and boards262 [2] Manufacture of computers and peripheral equipment263 [3] Manufacture of communication equipment264 [4] Manufacture of consumer electronics582, 61, 62, 631, 951 C'. ICT services industries (operational) [C'=9+13]61 [9] Telecommunications582, 62, 631, 951 [13] Computer and related activities [13=8+10+11+12]c) Additional sectors10‐33 Manufacturing20‐21 Manufacture of chemicals and chemical products; Manufacture of pharmaceuticals, medicinal chemical and botanical products20 Manufacture of chemicals and chemical products21 Manufacture of pharmaceuticals, medicinal chemical and botanical products27‐28 Manufacture of machinery and equipment29‐30 Manufacture of transport equipment29 Manufacture of motor vehicles, trailers and semi‐trailers30 Manufacture of other transport equipment303 Manufacture of air and spacecraft and related machinery45‐47 Wholesale and retail trade, repair of motor vehicles and motorcycles45 Wholesale and retail trade and repair of motor vehicles and motorcycles49‐99 Services, except trade49‐53 Transportation and storage58‐63 Information and communication64‐66 Financial and insurance activities69‐82 Professional, scientific, technical, administration and support service activities69‐75 Professional, scientific and technical activities85 Education86‐88 Human health and social work activities
[ 6 ]
Industry Disaggregation. DICTA 2015
NACE Rev.2. Descriptiona) ICT sector (comprehensive definition)261‐264, 268, 465, 582, 61, 62, 631, 951 A. ICT Total [A=B+C]261‐264, 268 B. ICT manufacturing industries [B=1 to 5]261 [1] Manufacture of electronic components and boards2611 [1.1] Manufacture of electronic components2612 [1.2] Manufacture of loaded electronic boards262 [2] Manufacture of computers and peripheral equipment263 [3] Manufacture of communication equipment264 [4] Manufacture of consumer electronics268 [5] Manufacture of magnetic and optical media465, 582, 61, 62, 631, 951 C. ICT total services [C=C1+C2]465 C.1. ICT trade industries [C1=6+7]4651 [6] Wholesale of computers, computer peripheral equipment and software4652 [7] Wholesale of electronic and telecommunications equipment and parts582, 61, 62, 631, 951 C.2. ICT services industries [C2=8 to 12]582 [8] Software publishing5821 [8.1] Publishing of computer games5829 [8.2] Other software publishing61 [9] Telecommunications611 [9.1] Wired telecommunications activities612 [9.2] Wireless telecommunications activities613 [9.3] Satellite telecommunications activities619 [9.4] Other telecommunications activities62 [10] Computer programming, consultancy and related activities6201 [10.1] Computer programming activities6202‐6203 [10.2] Computer consultancy and computer facilities management activities6202 [10.2.1] Computer consultancy activities6203 [10.2.2] Computer facilities management activities6209 [10.3] Other information technology and computer service activities631 [11] Data processing, hosting and related activities; web portals6311 [11.1] Data processing, hosting and related activities6312 [11.2] Web portals951 [12] Repair of computers and communication equipment9511 [12.1] Repair of computers and peripheral equipment9512 [12.2] Repair of communication equipmentTOT D. Total (ICT and non‐ICT)b) ICT sector (operational definition)261‐264, 61, 582, 62, 631, 951 A'. ICT Total (operational) [A'=B'+C']261‐264 B'. ICT manufacturing industries (operational) [B'=1 to 4]261 [1] Manufacture of electronic components and boards262 [2] Manufacture of computers and peripheral equipment263 [3] Manufacture of communication equipment264 [4] Manufacture of consumer electronics582, 61, 62, 631, 951 C'. ICT services industries (operational) [C'=9+13]61 [9] Telecommunications582, 62, 631, 951 [13] Computer and related activities [13=8+10+11+12]
[ 7 ]
Industry Disaggregation. DICTA 2015 (Cont.)
NACE Rev.2. Descriptionc) Retail sale via mail order houses or via Internet4791 Retail sale via mail order houses or via Internetd) Media and Content sector581, 59, 60, 639 A. MC sector [A=B+C+D]581 [B] Publishing of books, periodicals and other publishing activities [B=1 to 4]5811 [1] Book publishing5812 [2] Publishing of directories and mailing lists5813‐5814 [3] Publishing of newspapers, journals and periodicals5813 [3.1] Publishing of newspapers5814 [3.2] Publishing of journals and periodicals5819 [4] Other publishing activities59‐60 [C] Audiovisual and broadcasting activities [C=5 to 6]59 [5] Motion picture, video and television programme production, sound recording and music publishing activities591 [5.1] Motion picture, video and television programme activities5911 [5.1.1] Motion picture, video and television programme production activities5912 [5.1.2] Motion picture, video and television programme post‐production activities5913 [5.1.3] Motion picture, video and television programme distribution activities5914 [5.1.4] Motion picture projection activities592 [5.2] Sound recording and music publishing activities60 [6] Programming and broadcasting activities601 [6.1] Radio broadcasting602 [6.2] Television programming and broadcasting activities639 [D] Other information service activities [D=7 to 8]6391 [7] News agency activities6399 [8] Other information service activities n.e.c.e) Additional sectors10‐33 Manufacturing20‐21 Manufacture of chemicals and chemical products; Manufacture of pharmaceuticals, medicinal chemical and botanical products20 Manufacture of chemicals and chemical products21 Manufacture of pharmaceuticals, medicinal chemical and botanical products27‐28 Manufacture of machinery and equipment29‐30 Manufacture of transport equipment29 Manufacture of motor vehicles, trailers and semi‐trailers30 Manufacture of other transport equipment303 Manufacture of air and spacecraft and related machinery45‐47 Wholesale and retail trade, repair of motor vehicles and motorcycles49‐99 Services, except trade49‐53 Transportation and storage58‐63 Information and communication64‐66 Financial and insurance activities69‐82 Professional, scientific, technical, administration and support service activities69‐75 Professional, scientific and technical activities85 Education86‐88 Human health and social work activities
[ 8 ]
The EU should aim at improving its Labour Productivity
Figure 2. Labour productivity, average 2006-2013(Thousands of 2010 EUR PPP)
Source: DICTA 2015 database elaborated by Ivie and JRC-IPTS
85.277.0
66.3 64.2 62.960.2 56.9
52.246.9
29.3
21.111.9
8.4
0
10
20
30
40
50
60
70
80
90Norway US
Switzerland
Australia
Taiwan
Cana
da EU
Japan
Korea
Russia
Brazil
China
India
Average 25.7
[ 9 ]
The rate of growth of labour productivity (LP) in the EU hasbeen…modest
Figure 3. Labour productivity growth. EU and Non-EU countries, 1995-2014(annual rates in percentages)
Source: Total Economy Database, May 2015 (TCB)
8.19
4.68
3.17 2.98 2.72
1.67 1.26 1.02 0.96 0.96 0.86 0.85 0.75
0123456789
10Ch
ina
India
Korea
Taiw
an
Russia US
Australia EU
Cana
da
Japa
n
Brazil
Switzerla
nd
Norway
Average = 2.3%
[ 10 ]
The leadership of the US in LP with respect to the EU has widened during the2006-2012 period in all industries but two
ICT industries
1 Manufacture of electronic components and boards [261]
2 Manufacture of computers and peripheral equipment [262]
3 Manufacture of communication equipment [263]
4 Manufacture of consumer electronics [264]5 Telecommunications [61]6 Computer and related activities [5820, 62,
631, 951]Non‐ICT industries
7 Manufacture of chemicals and chemical products [20]
8 Manufacture of pharmaceuticals, medicinal chemical and botanical products [21]
9 Manufacture of machinery and equipment [27‐28]
10 Manufacture of motor vehicles, trailers and semi‐trailers [29]
11 Manufacture of other transport equipment [30]
12 Transportation and storage [49‐53]13 Information and communication [58‐63,
except Computer and related activities]14 Financial and insurance activities [64‐63]15 Professional, scientific and technical
activities [69‐75]16 Administration and support service
activities [76‐82]17 Education [85]18 Human health and social work activities [86‐
88]
Figure 6. ICT sector Productivity. Dynamics of US-EU differences by industry. 2006 and 2013(Thousands of 2010 euros PPS)
[ 11 ]
We will concentrate on some of the most relevant ones (though not all) with theobjetive of checking how EU performs:
1. The role of ICT industries and ICT R&D
2. Intangible Assets2.1 R&D,
2.2 Human capital,
2.3 Other Intangible Assets: Organizational Capital and Training
What might be the sources of EU disappointing performance
[ 12 ]
1.The role of ICT• Traditionally, the manufacturing sector has experienced higher rates of LP growth than
services.
• Since the ICT revolution this classical view has been challenged, basically due to thecontribution of ICT to: • i) economic globalization; • ii) vertical disintegration of the production process; • iii) organizational changes within firmsAnd, hence, to productivity growth.
• ICT can be viewed from the producing industries side or from the assets´ (software, hardware and communications) side. Software is both an ICT asset and an intangible asset.
• ICT impact on LP operates through three classical channels: i) labour quality; ii) technological progress embedded in capital assets; iii) MFP
• Plus the spillover effects generated by the difussion of technical progress from ICT producing to ICT using industries.
• And its complementarity with other, mainly intangible, assets.
[ 13 ]Source: PREDICT Report 2015 database elaborated by Ivie and JRC-IPTS
EU
NO
CH
AU
BR
CA
CNIN
JP
KO
RU
TW
US
y = 0,59x + 3,16R² = 0,76
0
10
20
30
40
50
60
70
80
90
100
0 50 100 150 200
Labo
ur produ
ctivity
(in thou
sand
s 200
5 EU
R PP
S), ave
rage
2006‐
2012
ICT Labour productivity (in thousands 2005 EUR PPS)average 2006‐2012
There is a positive and significant correlation between LP growth in the ICT sector and aggregated LP growth.Figure 4. Total labour productivity and ICT labour productivity. EU and Non-EU countries, average 2006-2012
[ 14 ]
LP of ICT sector improved in all countries in relation to the EU
Figure 5. ICT sector Productivity. Dynamics of other economies’ differences vs. the EU average. 2006 and 2013 (Thousands of 2010 euros PPS)
[ 15 ]
3. Spillover effects of ICT. Intangibles and Growth• The impact of ICT technologies should not be considered in isolation from a
broader concept of investment, especially intangible assets.
• Tangible assets include machinery, buildings, as well as ICT assets such as hardware and communication. Only recently National Accounts recognize someintangible assets such as software (ICT) and R&D.
• ICT, intangible assets and productivity (both labour and MFP) are closely related
• Empirical evidence shows a strong correlation between intangibles and LP and MFP growth (Corrado, Haskel, Jona-Lasinio and Iommi (2013)).
• Corrado, Haskel and Jona-Lasinio (2014) also find:• i) a complementary relation between ICT and intangible capital• ii) significant spillovers of intangible capital.
[ 16 ]
The US, followed by the UK, have the highest share of intangible assets in totalGFCF. Greece, Portugal, Spain and Italy are on the lowest bound.
Figure 8. Share of GFCF on intangible assets over total GFCF. EU-15 and US. Average 2006-2010 (percentages)
Source: Eurostat, INTAN-Invest and own elaboration.
63.0
56.7
46.8 45.7 45.542.8 41.8 41.7 41.5 41.5 40.6
35.0 33.3
28.6 27.8 27.5
19.0
0
10
20
30
40
50
60
70
US
UK
Swed
en
Nethe
rland
s
Fran
ce
Ireland
Denm
ark
Belgium
Finlan
d
Germ
any
EU15
Luxembo
urg
Austria
Portug
al
Italy
Spain
Gree
ce
Average = 40.6%
[ 17 ]
3.1. R&D and growth
• R&D affects LP by: • i) improving the quality of goods and services produced• ii) reducing the average production costs• iii) widening the array of final goods or intermediate inputs available to
companies.
• R&D may also (and it usually does) produce positive spillover effects(knowledge spillovers)
• The return to R&D is not an invariant parameter, but the outcome of a complex interaction between firm strategy, competition strategy, and themacroeconomic environment which is basically unpredictable (Hall, Mairesse and Mohnen, 2010)
[ 18 ]
The advantage of the US in terms of LP is higher than the one it shouldhave according to its BERD intensity
Figure 9. BERD intensity and labour productivity, average 2006 and 2012
Source: PREDICT Report 2015 database elaborated by Ivie and JRC-IPTS
EU28
NO
CH
AU
BR
CA
CNIN
JP
KO
RU
TW
US
y = 13.98x + 25.01R² = 0.22
0
10
20
30
40
50
60
70
80
0 1 2 3
Labo
ur produ
ctivit
y (in
thou
sand
s 200
5 EUR
PPS),
averag
e 200
6‐20
12
BERD intensity, average 2006‐2012
[ 19 ]
Figure 10. BERD intensity (BERD/GDP). EU and Non-EU countries, average 2006-2012 (Percentages)
BERD intensity in the EU ranks 7th out of 13 economies
Source: Eurostat and PREDICT Report 2015 database elaborated by Ivie and JRC-IPTS
2.752.61
2.14 2.01 1.95
1.27 1.23 1.220.99
0.850.70
0.490.26
0.0
0.5
1.0
1.5
2.0
2.5
3.0
Korea
Japan
Switzeland
Taiwan US
Australia EU
China
Cana
da
Norway
Russia
Brazil
India
average = 1.5%
[ 20 ]
BERD intensity is much higher in the ICT sector in all countries contributing toits faster LP growth
Figure 6. BERD intensity (BERD/GDP). Whole economy and ICT sector. EU and Non-EU countries, average 2006-2012 (Percentages)
Source: PREDICT Report 2015 database elaborated by Ivie and JRC-IPTS
0
2
4
6
8
10
12
14
16
18
20
Korea
Japan
Taiwan US
Norway
Cana
da¹
EU
China
Australia
Brazil¹
India
Russia
Total ICT sector
[ 21 ]
3.2. Human Capital and Growth
• It is widely accepted the need to distinguish between the number of workers(labour quantity) and their qualification measured from different perspectives(labour quality).
• Dynamics is important for the impact of human capital on economic growth:• Programs to improve cognitive skills through schools take time to be implemented• The impact of improved skills will not be realized until the students with greater skills
move into the labour force.• The economy responds over time through the development and implementation of new
technologies
• A good indicator of Human Capital should combine education attainment withtype of ocuppation performed and level of competencies (PIAAC).
• ICT have a positive effect on these three elements
[ 22 ]
EU
NO
CH
AU
BR
CA
JP
KO
RU
TW
US
0
20
40
60
80
100
0 10 20 30 40 50 60
Labo
ur produ
ctivity
(in thou
sand
s 200
5 EU
R PP
S), ave
rage
2006‐
2012
Highly qualified employment/Total employment (%)average 2006‐2012
y=0,92x+18,6R²=0,24
The US uses its qualified workers in a more efficient way than the EU. The US LP is higher…
Figure 11. Labour productivity and highly qualified employment*. EU and Non-EU countries, average 2006-2012
* Employment in ISCO 1-3/total employmentSource: PREDICT Report 2015 database elaborated by Ivie and JRC-IPTS and ILO
[ 23 ]
Figure 12. Employment in ISCO 1-3/Total employment. EU and Non-EU countries, average2006-2013(Percentages)
…for a similar share of highly qualified employment
Note: for China and India data are not availableSource: Eurostat, ILO and own elaboration
47.944.5 43.1 42.6 41.5
38.9 36.833.2
24.121.6 19.9
0
10
20
30
40
50
60Sw
itzerland
Norway
Cana
da
Australia
Russia EU US
Taiwan
Japa
n
Korea
Brazil
Average = 35,8%
[ 24 ]
UK and Netherlands have a larger share of OC investment than the US, and Denmark a larger share in Training. Spain and Greece appear in thelowest bound.
Figure 14. Share of GFCF on intangible assets over total GFCF. EU-15 and US. Average 2006-2010 (percentages)
Source: Eurostat, INTAN-Invest and own elaboration.
a) Organisational capital b) Training
19.6
14.4 14.412.9
12.1 11.510.4 10.2 9.6
8.6 8.4 8.2
6.3 6.15.1
4.2
2.1
0
5
10
15
20
25
UK
Netherland
s
US
Belgium
Fran
ce
Ireland
EU15
Swed
en
Portug
al
Germ
any
Finlan
d
Austria
Italy
Luxembo
urg
Denm
ark
Spain
Gree
ce
Average = 10.4%
7.2 6.9 6.66.1 5.9 5.7 5.6
4.9 4.94.1
3.7 3.53.1 2.9
2.6 2.4
0.9
0
1
2
3
4
5
6
7
8
9
10
Denm
ark
US UK
Germ
any
Ireland
Fran
ce
Netherland
s
Luxembo
urg
EU15
Austria
Swed
en
Italy
Finlan
d
Belgium
Portug
al
Spain
Gree
ce
Average = 4.9%
[ 25 ]
Facts: The EU has a LP problem as shown by:• A lower LP level than the US, Swiztzerland, Norway, Australia, Canada and Taiwan• An increasing gap with the US that has widened steadily since 1995, and worsened after 2009
What are the reasons underpinning this EU disappointing achievement
1. The role of ICT industries and ICT R&D. LP in the EU ICT sector has shown during 2006-2013:• Worse performance than the other 12 economies considered• Lower BERD intensity than Norway, Canada, Japan, Korea, Taiwan and the US
It should be highlighted that the EU LP productivity gap affects not only the ICT sector but (almost) all sectorsof the economy. Thus, the EU has not fully taken advantage of the efficiency gains enabled by the ICT revolution. Something else is missing
2. Intangible Assets. Their impact is positively affected by ICT through spillover and complementarity effectswhich also reinforce the positive effects of ICT.
• The EU needs increasing the share of GFCF in intangibles approaching that of the US• Specially BERD intensity (both total and ICT BERD) which is much lower• As well as in organisational capital, on-the-job training, design and branding• However, the EU also needs to improve the statistical information in these last forms of intangible capital
Last Warning: The EU is conformed by very different countries/regions. The present situation is much more unfavourable for Southern and Eastern countries/regions. Regional Policies (as well as information at theregional level) are needed .
Concluding Remarks