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PRODUTTIVITA’

Matteo Bugamelli

Banca d’Italia

Dipartimento Economia e Statistica

Perhaps the most remarkable fact about economic growth in recent decades is

the slowdown in productivity growth that occurred around the year 2000.

This slowdown is global in nature, featuring in many countries throughout the

world.”

Prof. Chad Jones (Stanford) @ 2017 Sintra Forum on Central Banking

“The euro area economy continues to expand at a moderate, but steady pace

…. expected to continue…But productivity growth has remained very

subdued. If it persists, [it] will matter greatly for our future prosperity,

…and the cohesion of the euro area.”

Mario Draghi (Nov. 2016)

“The Italian economy has been suffering for a long time of a too low

dynamics of productivity. […] The more we hesitate to fill this gap …, the

more negative would be the effects on Italians’ living standards.”

Ignazio Visco (Sept. 2017)

Productivity at the center of the debate

Why productivity so

relevant?

GDP per capita and productivity

Source: Total Economy Database, The Conference Board, May 2017

19501990

19702016

19501970

1990

2016

Why productivity so relevant?

• Productivity directly affects firms’ marginal cost of

production: ceteris paribus, higher productivity means

lower prices (higher real disposable income) and

stronger competitiveness on international markets

• Productivity is a key determinant of potential output

(“highest level of real GDP”): used to estimate the

structural deficit (i.e. net of the effects of business

cycle), determines “fiscal space” (fiscal policy)

• Short-run deviation of actual output from potential

(“output gap”) is indicator of future inflationary

pressures (monetary policy)

Outline of the presentation

1. Definition of productivity

2. Data: Italy vs other euro area countries

3. Productivity growth: the channels

4. Productivity growth: the determinants

- Innovation & technology

- Ownership and Management

- Human capital

- Business environment: rule of law

(M. Bugamelli & F. Lotti (eds.) et al. (2018), “Productivity growth in Italy: a tale of a slow-

motion change”, Bank of Italy, Occasional papers, no. 422)

What is productivity?

The definition of productivity [1]

• Productivity is commonly defined as a ratio of a volume measure of

production/output to a volume measure of factor/input use: efficiency

Source: OECD Manual, «Measuring Productivity»

The definition of productivity [2]

• Labour productivity:

- Value added per person employed

- Value added per employee

- Value added per hour worked

- Value added per full-time equivalent (FTE) person

• Multi/total factor productivity:

- Technology

- Management and organization

2. The data

𝐺𝐷𝑃𝑡 =𝐺𝐷𝑃𝑡𝐻𝑜𝑢𝑟𝑠𝑡

×𝐻𝑜𝑢𝑟𝑠𝑡

𝑊𝑜𝑟𝑘𝑒𝑟𝑠𝑡×

𝑊𝑜𝑟𝑘𝑒𝑟𝑠𝑡𝐿𝑎𝑏𝑜𝑟𝐹𝑜𝑟𝑐𝑒𝑡

×𝐿𝑎𝑏𝑜𝑟𝐹𝑜𝑟𝑐𝑒𝑡𝑃𝑜𝑝𝑢𝑙𝑎𝑡𝑖𝑜𝑛𝑡

× 𝑃𝑜𝑝𝑢𝑙𝑎𝑡𝑖𝑜𝑛𝑡

Efficiency Labor market Demographics

ItalyFrance Germany

Manufacturing better than services

Manufacturing:

- improving since 2003

- same performance as main

euro area countries since 2009

Private services:

- always flat

- no signs of recovery

both in absolute and

relative terms

Firm size is key

A very polarized productive structure

The channels

Within firm, reallocation, entry, exit

Allocative efficiency

Source: Andrews & Cingano (2014)

Up-or-out dynamics

As compared to US, Italian new firms:

• enter smaller

• grow at lower rates and for a lower number of years,

• less likely to exit

The determinants

WithinFirms increasing

their productivity

Entry/exitNew firms displacing

older and less

productive onesCh

an

nel

s

Internal (to the firm) External

Det

erm

inan

ts

Innovation

Technology

Human capital (demand)

Ownership

Management

Human capital (supply)

Finance

Labor market & Industrial relations

Regulation of entry

Competition and regulation

Insolvency regime

Rule of law

PRODUCTIVITY

GROWTH

ReallocationFactors moving

from less to more

productive firms

Firm size

Innovation and technology

Innovation & technology

Key factors for productivity growth: all 3 channels at work

• Efficiency gains at the firm level:

R&D expenditure: product innovation

Capital accumulation: embodied technological change

Adoption of new technologies: ICTs, Robots, IoT, Big data…

Infrastructures: availability of high-speed Internet (broadband access)

Organizational innovation

• Creative destruction triggered by innovation increases reallocation

• Relevance of innovative start ups for employment and productivity

growth

Italy’s lagging behind: intangibles

Physical capital (GFCF) and Knowledge-based capital

Source: Source: OECD Science, Technology and Industry Scoreboard 2015; OECD calculations based on INTAN-Invest

data, www.intan-invest.net; and OECD STAN Database. OECD Survey of Italy 2017, Figure 31.

Italy’s lagging behind: IT

Source: Schivardi & Schmitz (2018)’s elaborations on OECD and EUKlems data

Italy’s lagging behind: robotics

Source: Eurostat Census data as of 2001 and IFR, 1995-2015.

Number of robots per 1,000 inhabitants

Innovation: which obstacles?

• External determinants: financing of innovation, business

environment, competition and regulation

• Internal determinants:

Firm size fig1 fig2

Ownership and management

Ownership and

management

Management practices

Source: Schivardi & Schmitz (2018)’s elaborations on WMS data

Management practices, IT and productivity

Source: Schivardi & Schmitz (2018)’s elaborations on WMS data

MP by type of ownership and management

Source: Bloom et al (2009)’s elaborations on WMS data

Family ownership & management in Italy

Source: Bugamelli et al. (2012)’s calculations using EFIGE data.

• Family owners: less diversified & more risk averse (Michelacci & Schivardi, 2013)

• Family management: overly cautious; strong negative correlation with

innovation propensity and growth (Bugamelli et al., 2012)

• Loyalty-based & non-meritocratic management (excessive dose of

familism): while needed to overcome financial and bureaucratic hurdles, it

implies worse utilization of IT, weaker productivity growth (Pellegrino & Zingales,

2017)

Human capital

Human capital and productivity

Key factor for innovation, technology adoption & therefore

productivity growth

• Macro level: educational attainments explain significant fraction of

cross-country heterogeneity in per capita output growth

• Micro level: human capital increases firms’ productivity

− Educated workers display higher ability to perform job tasks, process

information, acquire new competencies, create innovation, adapt to

technological changes

− Educated entrepreneurs and managers: better managerial practices

• Even more relevant in digital age

Lack of human capital

Italy: quantitative and qualitative shortage of HK wrt other

advanced economies

• In 2015: only 60% of people aged 25-64 years successfully

completed upper secondary education; only 18% hold a tertiary

level degree, well below EU average (79 and 32%)

• Gap does not reflect only past generations’ choices: among people

aged 25-34, share of college graduates is 25%, 7 pp less than EU

average

• Low participation in formal education → lower logical-analytical

and cognitive skills of the adult population

− According to PIAAC survey on adult skills, as of 2015 Italy ranked last in

language skills and third to last in numeracy (among OECD countries)

Human capital: demand or supply?(Colonna, 2017)

Negative feedbacks between demand and supply of skills:

• Supply: firms’ propensity to invest in new technologies, provide

on-the-job training, demand skilled labor restrained by difficulty in

finding skilled workers (education system)

• Demand: firms’ specialization in low skilled productions and

small firm size limit demand for skilled workers

• Vicious circle: low demand for skilled workers → low returns to

education → low incentives to invest in education (young people

within education system and older ones on the job) → low supply

of skilled workers → low innovation → specialization in low

skilled productions → low demand for skilled workers → …

Skill mismatch(Ballatore et al, 2018)

Business environment

Business environment

Many dimensions, all 3 channels at work:

• Regulation of entry (monetary vs time costs)

• Labor market regulation

• Competition and product market regulation (services

vs manufacturing)

• Insolvency regime (exit of firms)

• Efficiency of Public Administ. & civil justice

• Rule of law: Political connections

Corruption: one of highest level in EU

Shadow economy: tax evasion and illegal activities

Criminal organizations (Pinotti, 2015; Barone & Narciso, 2015; Barone & Mocetti,

2014)

Rule of law: political connections

Source: Cingano & Pinotti (2013)

Trade-off btw static efficiency gains (overcome regulatory barriers through political

connections) and dynamic losses (lower firm entry, innovation and productivity) (Akcigit, Basladze & Lotti, 2017)

Rule of law: tax evasion(Bobbio, 2016)

Hypothesis: tax enforcement increase with firm size

Mechanism:• Small firms invest less in innovation to avoid (shadow) cost of tax

regularization (within firm effect #1)

• → unfair competition: lower expected value of innovation reduced

→ incumbent firms optimally choose a lower innovation rate (within

firm effect #2)

• Selection hampered

Result:• many small and few innovative firms, weak innovation, high tax

evasion, very unfair competition → low productivity growth

• No tax evasion → GDP growth rate 1995-2006: from 0.9 to 1.1%

(higher: share of innovators, propensity to innovate, firm size)

Thanks for the attention

matteo.bugamelli@bancaditalia.it

Tables and figures

Firm size matters [1]

back

Firm size matters [2]

Source: Schivardi & Schmitz (2018)’s elaborations on Eurostat data back