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[ 1 ]
The EU Productivity gap:The role of ICT and intangible assets
Matilde MasUniversitat de València and Ivie
Dynamics of ICTs: industries, R&D, markets PREDICT Workshop 2016
February 18th, 2016, Sevilla
[ 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 capita
income grow
th (percentage), 1950
‐2014
Labour productivity growth (percentage), 1950‐2014
Figure 1. Labour productivity and per capita income, 1950-2014
Source: Total Economy Database, May 2015 (TCB)
[ 3 ]
The EU should aim at improving its Labour Productivity (LP)
Figure 2. Labour productivity, average 2006-2013(Thousands of 2010 EUR PPP)
Source: DICTA 2015 database elaborated by Ivie and JRC-IPTS
85.2
77.0
66.3 64.2 62.960.2
56.952.2
46.9
29.3
21.111.9
8.4
0
10
20
30
40
50
60
70
80
90Norway US
Switzerland
Australia
Taiwan
Canada EU
Japan
Korea
Russia
Brazil
China
India
Average 25.7
[ 4 ]
The rate of growth of labour productivity in the EUhas been…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
Taiwan
Russia US
Australia EU
Cana
da
Japan
Brazil
Switzerla
nd
Norway
Average = 2.3%
[ 5 ]
The leadership of the US in LP with respect to the EU has widened during the2006-2013 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)
[ 6 ]
We will concentrate on some of the most relevant ones (though not all) with theobjective 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
[ 7 ]
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 the contribution 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 theassets´ (software, hardware and communications) side. Software isboth an ICT asset and an intangible asset.
• ICT impact on LP operates through three classical channels: i) labourquality; ii) technological progress embedded in capital assets; iii) MFP
• Plus the spillover effects generated by the difussion of technicalprogress from ICT producing to ICT using industries.
• And its complementarity with other, mainly intangible, assets.
[ 8 ] 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 thousand
s 2005 EU
R PP
S), average
2006‐
2012
ICT Labour productivity (in thousands 2005 EUR PPS)average 2006‐2012
US higher LP growth has its origin not only in ICT industriesFigure 4. Total labour productivity and ICT labour productivity. EU and Non-EU countries, average 2006-2012
[ 9 ]
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)
[ 10 ]
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 Accountsrecognize some intangible assets such as software (ICT) and R&D.
• ICT, intangible assets and productivity (both labour and MFP) are closelyrelated
• 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 (i.e.
intangibles have a positive impact on productivity growth in ICT-intensive industries);
• ii) significant spillovers of intangible capital. (Spillovers are non-intended results on others through one´s own actions. Example: theR&D associated to social networking tools such as Facebook, YouTube and Twitter enables non-intended aggregated growth, specially in ICT-intensive industries)
[ 11 ]
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
Sweden
Netherla
nds
France
Ireland
Denm
ark
Belgium
Finlan
d
Germ
any
EU15
Luxembo
urg
Austria
Portugal
Italy
Spain
Greece
Average = 40.6%
[ 12 ]
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 the macroeconomic environment which is basically unpredictable(Hall, Mairesse and Mohnen, 2010)
[ 13 ]
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
EU
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
Labour productivity
(in th
ousands 2005
EUR PPS),
average 2006
‐2012
BERD intensity, average 2006‐2012
[ 14 ]
Figure 10. BERD intensity (BERD/GDP). EU and Non-EU countries, average 2006-2013 (Percentages)
BERD intensity in the EU ranks 8th out of 13 economies
¹ 2006-2012 for India; 2006 and 2011 average for Brazil.
Source: DICTA 2015 database elaborated by Ivie and JRC-IPTS.
2.64 2.61
2.03 1.97 1.89
1.25 1.24 1.200.98
0.840.70
0.470.27
0.0
0.5
1.0
1.5
2.0
2.5
3.0Korea
Japan
Switzerland
Taiwan US
Australia
China EU
Canada
Norway
Russia
Brazil¹
India¹
average = 1.6%
[ 15 ]
BERD intensity is much higher in the ICT sector in (almost) all countriescontributing to its faster LP growth
Figure 6. BERD intensity (BERD/GDP). Whole economy and ICT sector. EU and Non-EU countries, average 2006-2013 (Percentages)
¹ 2006-2012 for Japan, India and Russia; 2006-2011 for Canada; 2006 and 2011 average for Brazil.
Source: DICTA 2015 database elaborated by Ivie and JRC-IPTS.
0
2
4
6
8
10
12
14
16Korea
Japan¹ US
Taiwan
Canada¹
Norway EU
China
Australia
Brazil¹
India¹
Russia¹
Total ICT sector
[ 16 ]
3.2. Human Capital and Growth• Widely accepted: the need to distinguish between the number of
workers (labour quantity) and their qualification measured fromdifferent perspectives (labour quality).
• Dynamics is important for the impact of human capital on economicgrowth:• 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 educationattainment with type of occupation performed and level of competencies (PIAAC).
• ICT have a positive effect on these three elements.
[ 17 ]
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 thousand
s 2005 EU
R PP
S), average
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
[ 18 ]
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
Japan
Korea
Brazil
Average = 35,8%
[ 19 ]
The EU is in a worse position than the EU in both additional forms (OC and Training) of intangible capital. Spain and Greece appear in the lowestbound.
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
France
Ireland
EU15
Sweden
Portugal
Germ
any
Finland
Austria
Italy
Luxembo
urg
Denm
ark
Spain
Greece
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
France
Netherland
s
Luxembo
urg
EU15
Austria
Sweden
Italy
Finland
Belgium
Portugal
Spain
Greece
Average = 4.9%
[ 20 ]
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) allsectors of the economy. Thus, the EU has not fully taken advantage of the efficiency gains enabled bythe ICT revolution. Something else is missing
2. Intangible Assets. Their impact is positively affected by ICT through spillover and complementarityeffects which 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
capitalLast Warning: The EU is conformed by very different countries/regions. Regional Policies?
Concluding Remarks
[ 21 ]
The EU Productivity gap:The role of ICT and intangible assets
Matilde MasUniversitat de València and Ivie
Dynamics of ICTs: industries, R&D, markets PREDICT Workshop 2016
February 18th, 2016, Sevilla
