Labour productivity in business sector services

Developments in information and communication technologies (ICT) combined with internationally fragmented production processes are making business services increasingly dynamic, transportable and tradeable. As a result, several business sector services show characteristics similar to high-productivity manufacturing industries; they intensively use ICT and knowledge-based capital, exploit economies of scale, and are increasingly exposed to international competition.

Key findings

Labour productivity growth varies substantially across business sector services. In the pre-crisis period, services that are traded internationally and thus with a higher exposure to international competition, such as information and communication services and finance and insurance activities, showed labour productivity growth rates that were as high as or even higher than those in the manufacturing sector. However, post the crisis, labour productivity growth in manufacturing was higher in most countries than in finance and insurance, and information and communication services.

Labour productivity growth decelerated significantly in finance and insurance services in most countries, with negative growth rates in countries whose banking sectors were severely hit by the crisis, such as Iceland, Portugal, Spain and the United Kingdom. Productivity growth also slowed considerably in information and communication services, especially in Austria, Estonia, Greece, Hungary, Latvia, Luxembourg, the Netherlands, Norway, the Slovak Republic and the United States. In Ireland, high labour productivity growth in information and communication services in the post-crisis period reflects increasing flows of high-tech foreign direct investment of IT multinationals.

Definition

Labour productivity growth by industry is defined as the rate of growth in real gross value added (in basic prices) per hour worked by industry. The figures present sectoral productivity growth for those countries which data on real gross value added and hours worked by sector are available by ISIC Rev.4 breakdown in the OECD National Accounts Statistics (database). For Japan, Korea and the United States, in the absence of national accounts data on total hours worked by main ISIC Rev.4 economic activity, the total number of persons employed (employees and self-employed) is used as a measure of labour input. The business sector services covers wholesale and retail trade, repair of motor vehicles and motorcycles, transportation and storage as well as accommodation and food services –presented here as “distributive trade, repairs; transport; accommodation, food services”–; information and communication services; financial and insurance activities; and professional, scientific and support activities.

Comparability

The comparability of productivity growth across industries and countries may be affected by problems in measuring real value added. This is particularly relevant for those business sector services where it is difficult to isolate price effects that are due to changes in the quality (or in the mix of services provided as a bundle) from pure price changes. Despite substantial progress made over the past 15 years in compiling service producer price indices (SPPIs), the methods used to compute constant price value added still vary across countries, affecting the measurement of productivity growth (Chapter 8. ). Real estate activities are excluded from the business sector services, as their value added includes the imputation made for the dwelling services provided and consumed by home-owners.

References

Ahmad, N., J. Ribarsky and M. Reinsdorf (2017), “Can potential mismeasurement of the digital economy explain the post-crisis slowdown in GDP and productivity growth?”, OECD Statistics Working Papers, No. 2017/09, OECD Publishing, Paris, http://dx.doi.org/10.1787/a8e751b7-en.

OECD Productivity Statistics (database), http://dx.doi.org/10.1787/pdtvy-data-en.

Wölfl, A. (2005), “The service economy in OECD countries”, OECD Science, Technology and Industry Working Papers, No. 2005/3, http://dx.doi.org/10.1787/212257000720.

Wölfl, A. (2003), “Productivity growth in service industries – An assessment of recent patterns and the role of measurement”, OECD Science, Technology and Industry Working Papers, No. 2003/7, http://dx.doi.org/10.1787/086461104618.

Figure 3.4. Labour productivity in business sector services
Real gross value added per hour worked, percentage change at annual rate
Figure 3.4. Labour productivity in business sector services

 StatLink http://dx.doi.org/10.1787/888933968725

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