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Digitalisation and Productivity -
in Search of the Holy Grail
Alain de Serres – Deputy Director Economics Department
Giuseppe Nicoletti – Head of Division Structural Policy Analysis
Christina Timiliotis – Economist, Structural Policy Analysis
Productivity growth has slowed down in major economies
Source: Productivity Statistics, OECD Stat.
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
GDP per hour worked, annual change
“You can see the computer
age everywhere but in the
productivity statistics.”
Robert Solow, 1987
The holy grail, half full, or half empty?
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.
Productivity gaps have widened
especially in digital-intensive sectors
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%)
Industries with high digital intensity Industries with low digital intensity
Source: Gal et al. (2019)
Total factor productivity (2009=100)
Laggards share of output is small…
…but lifting their productivity to median level would
increase aggregate productivity growth significantly
Source: Criscuolo et al. (2019, forthcoming)
0
2
4
6
8
10
Bottom 10% firms Bottom 10%-40% firms
Share of VA Productivity gainsPercentage
Digital technologies are ubiquitous - or are they?
Percentage of firms having adopted a specific technology, 2017*
EU15
Germany
Nordics
Source: Eurostat
* Or latest available
0
10
20
30
40
50
60
70
80
90
100
High-speed broadband
(>30 Mbit/s)
Cloud Computing Enterprise Resource
Planning
Customer Relationship
Management
DEU Nordics EU-15
To find the holy grail, what matters is
SkillsHighspeed Broadband Regulatory environment
Channels influencing the digital-productivity nexus
Productivity
Digital adoption in firms
Enable complementary
investment
Incentivise technological
experimentation
Capabilities Incentives
II
I
Spillovers from other firmsWithin firm
Structural policies
Digital technology diffusion:
A matter of capabilities, incentives or
both?
Where are the key complementarities?
What role for structural policies ?
What are the key structural policies to promote
the diffusion of digital technologies and which
complementarities could be exploited?Q
Capabilities
Organisational
Capital
Share of jobs with high
performance work
practices
Talent Pool Percentage of adults
with no ICT skills
Share of high-and low
skilled in training
Share of workers in
lifelong training
Allocation Skill mismatch
Incentives
Competition Product Market Regulation
Digital Trade Barriers
Reallocation Employment Protection
Legislation
Share of venture capital in
GDP
Technology A
Complementarities
High-speed broadband and
cloud computing
(DeStefano et al., 2018)
Supply-chain management and
customer-relationship software
(Wieder et al., 2006; Aral et al., 2006; Engelstätter,
2009; Bartelsman et al., 2017).
1. Between technologies
Technology B
Digital
technologies
R&D and other intangible
investments
(Corrado et al., 2017; Mohnen et al., 2018)
Human capital and ICT-
related skills
(Bugamelli and Pagano, 2004)
Reallocation-enhancing
regulations
(Gust and Marquez, 2004; Bartelsman,
2013; Conway, P. et al., 2006)
Organisational capital
and management skills
(Brynjolfsson and Hitt, 2000; Basu et
al., 2003; Bloom et al., 2012; Aral et
al., 2012)
Three types of
Complementarities 2. Between technologies & structural/market factors
3. Between
different
structural/
market
factors
• Data on firm digitalisation is scarce, especially across countries!
• Firm-level data on adoption at the country-sector level; 25 EU
countries (and Turkey), 25 industries, 2010-16; Only >10 employees
• Individual technologies instead of aggregate ICT investment (simple
and complex cloud computing, ERP, CRM) and high-speed internet
access.
Main data sources
European Union data on digitalisation
0
2
4
6
8
10
Higher use of high-
speed broadband
Upgrading skills
(technical and
managerial)
Reducing regulatory
barriers to
competition and
reallocation
Easier financing for
young innovative
firms
Reducing barriers
to digital trade
Higher use of e-
government
Enterprise Resource Planning (ERP) Customer Relationship Management (CRM)
Cloud Computing Cloud Computing (complex)
percentage points
Digital adoption can be boosted through
Effect on the adoption rate of selected digital technologies of closing half
of the gap with best performing countries in a range of areas. Average OECD country
Source: Sorbe et al. (2019)
Digital technologies enable firms to innovate, for example by
• improving business processes (e.g. supply chains, HR,
automatisation)
• allowing for scale without mass
Why has it not lead to greater productivity gains?
What’s the evidence?
Digitalisation and productivity – in search of the holy
grail
Q
More productive firms benefit more from a
digitalized environment
0
0.5
1
1.5
2
2.5
High-speed broadband Enterprise Resource
Planning
Customer Relationship
Management
Cloud Computing
%
Firm-level increase in productivity from a 10 percentage point increase in digital adoption
Laggards FrontierMedian
Increasing access to high-speed broadband
entails a double dividend
0%
1%
2%
3%
4%
5%
6%
7%
GRC
ITA
FRA
SVK
CZE
AUT
POL
TUR
HUN
SVN
DEU
GBR
ESP
LVA
EST
NOR
IRL
PRT
LTU
NLD
SWE
Direct effect on productivity Indirect effect (through adoption of specific digital technologies)
Effect on TFP after 3 years
Source: Sorbe et al. (2019)
1st complementarity: among technologies
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
2nd complementarity: between digital technologies and skills
Good management and technical skills are key
0 0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 1.8 2
Technical Skills
Computer and Electronics
Management of Personnel Resources
Resource Management Skills
High skill shortage Medium skill shortage Low skill shortage
Source: Gal et al. (2019)
Increase in productivity growth associated with a ten percentage point increase in
the diffusion of high-speed broadband, for specific skill shortages
2nd complementarity: between digital technologies and skills
Higher bang-for-the-buck from packaging
reforms
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
Improving work practices
Enhancing reallocation and digital trade
Additional effect from joint action
Effect on productivity from joint policy action after three years
Source: Sorbe et al. (2019)
3rd complementarity: between policy areas
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%
Higher use of
high-speed
broadband
Upgrading skills
(technical and
managerial)
Reducing
regulatory
barriers to
competition and
reallocation
Easier financing
for young
innovative firms
Reducing barriers
to digital trade
Higher use of e-
government
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)
Source: Sorbe et al. (2019)
Elements that could help solve the
productivity puzzle and find the “holy grail”
1. Low digital diffusion
2. Stronger productivity benefits from digitalisation for the best performers
3. Strong complementarity of both adoption and its productivity benefits
with intangible investments that are especially hard to implement for
laggards
4. Sobering productivity effects from skill gaps that are especially difficult to
fill for laggards
The following policy priorities emerge …
• Regulatory frameworks that support investment in broadband and pro-
competition reforms in telecommunication sectors to enable broader and
cheaper access to high-speed internet;
• 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
Some of these policies can also support inclusiveness (e.g. skills)
What’s in it for Germany?
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
Higher use of
high-speed
broadband
Upgrading skills
(technical and
managerial)
Reducing
regulatory
barriers to
competition and
reallocation
Easier financing
for young
innovative firms
Reducing barriers
to digital trade
Higher use of e-
government
Effect on firm productivity (through digital adoption) in Germany of closing half of
the gap with best performing country in a range of areas; effect after 3 years
OECD average
All papers can be found on our dedicated website
http://www.oecd.org/economy/growth/digitalisation-productivity-and-
inclusiveness
Alain.DeSerres@oecd.org
Giuseppe.Nicoletti@oecd.org
Christina.Timiliotis@oecd.org
Stephane.Sorbe@oecd.org
Peter.Gal@oecd.org
Background
Adoption by firm size (2017)
Source: Eurostat
Skill shortages Germany vs OECD (2011)
-0.005
0
0.005
0.01
0.015
0.02
0.025
Computers and Electronics Management of Personnel
Resources
Resource Management Skills Technical Skills
OECD DEU
Source: Skills for Jobs OECD

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Digitalisation and Productivity - in Search of the Holy Grail

  • 1. Digitalisation and Productivity - in Search of the Holy Grail Alain de Serres – Deputy Director Economics Department Giuseppe Nicoletti – Head of Division Structural Policy Analysis Christina Timiliotis – Economist, Structural Policy Analysis
  • 2. Productivity growth has slowed down in major economies Source: Productivity Statistics, OECD Stat. 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 GDP per hour worked, annual change
  • 3. “You can see the computer age everywhere but in the productivity statistics.” Robert Solow, 1987
  • 4. The holy grail, half full, or half empty? 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.
  • 5. Productivity gaps have widened especially in digital-intensive sectors 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%) Industries with high digital intensity Industries with low digital intensity Source: Gal et al. (2019) Total factor productivity (2009=100)
  • 6. Laggards share of output is small… …but lifting their productivity to median level would increase aggregate productivity growth significantly Source: Criscuolo et al. (2019, forthcoming) 0 2 4 6 8 10 Bottom 10% firms Bottom 10%-40% firms Share of VA Productivity gainsPercentage
  • 7. Digital technologies are ubiquitous - or are they? Percentage of firms having adopted a specific technology, 2017* EU15 Germany Nordics Source: Eurostat * Or latest available 0 10 20 30 40 50 60 70 80 90 100 High-speed broadband (>30 Mbit/s) Cloud Computing Enterprise Resource Planning Customer Relationship Management DEU Nordics EU-15
  • 8. To find the holy grail, what matters is SkillsHighspeed Broadband Regulatory environment
  • 9. Channels influencing the digital-productivity nexus Productivity Digital adoption in firms Enable complementary investment Incentivise technological experimentation Capabilities Incentives II I Spillovers from other firmsWithin firm Structural policies
  • 10. Digital technology diffusion: A matter of capabilities, incentives or both? Where are the key complementarities? What role for structural policies ? What are the key structural policies to promote the diffusion of digital technologies and which complementarities could be exploited?Q
  • 11. Capabilities Organisational Capital Share of jobs with high performance work practices Talent Pool Percentage of adults with no ICT skills Share of high-and low skilled in training Share of workers in lifelong training Allocation Skill mismatch Incentives Competition Product Market Regulation Digital Trade Barriers Reallocation Employment Protection Legislation Share of venture capital in GDP
  • 12. Technology A Complementarities High-speed broadband and cloud computing (DeStefano et al., 2018) Supply-chain management and customer-relationship software (Wieder et al., 2006; Aral et al., 2006; Engelstätter, 2009; Bartelsman et al., 2017). 1. Between technologies Technology B Digital technologies R&D and other intangible investments (Corrado et al., 2017; Mohnen et al., 2018) Human capital and ICT- related skills (Bugamelli and Pagano, 2004) Reallocation-enhancing regulations (Gust and Marquez, 2004; Bartelsman, 2013; Conway, P. et al., 2006) Organisational capital and management skills (Brynjolfsson and Hitt, 2000; Basu et al., 2003; Bloom et al., 2012; Aral et al., 2012) Three types of Complementarities 2. Between technologies & structural/market factors 3. Between different structural/ market factors
  • 13. • Data on firm digitalisation is scarce, especially across countries! • Firm-level data on adoption at the country-sector level; 25 EU countries (and Turkey), 25 industries, 2010-16; Only >10 employees • Individual technologies instead of aggregate ICT investment (simple and complex cloud computing, ERP, CRM) and high-speed internet access. Main data sources European Union data on digitalisation
  • 14. 0 2 4 6 8 10 Higher use of high- speed broadband Upgrading skills (technical and managerial) Reducing regulatory barriers to competition and reallocation Easier financing for young innovative firms Reducing barriers to digital trade Higher use of e- government Enterprise Resource Planning (ERP) Customer Relationship Management (CRM) Cloud Computing Cloud Computing (complex) percentage points Digital adoption can be boosted through Effect on the adoption rate of selected digital technologies of closing half of the gap with best performing countries in a range of areas. Average OECD country Source: Sorbe et al. (2019)
  • 15. Digital technologies enable firms to innovate, for example by • improving business processes (e.g. supply chains, HR, automatisation) • allowing for scale without mass Why has it not lead to greater productivity gains? What’s the evidence? Digitalisation and productivity – in search of the holy grail Q
  • 16. More productive firms benefit more from a digitalized environment 0 0.5 1 1.5 2 2.5 High-speed broadband Enterprise Resource Planning Customer Relationship Management Cloud Computing % Firm-level increase in productivity from a 10 percentage point increase in digital adoption Laggards FrontierMedian
  • 17. Increasing access to high-speed broadband entails a double dividend 0% 1% 2% 3% 4% 5% 6% 7% GRC ITA FRA SVK CZE AUT POL TUR HUN SVN DEU GBR ESP LVA EST NOR IRL PRT LTU NLD SWE Direct effect on productivity Indirect effect (through adoption of specific digital technologies) Effect on TFP after 3 years Source: Sorbe et al. (2019) 1st complementarity: among technologies
  • 18. 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 2nd complementarity: between digital technologies and skills
  • 19. Good management and technical skills are key 0 0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 1.8 2 Technical Skills Computer and Electronics Management of Personnel Resources Resource Management Skills High skill shortage Medium skill shortage Low skill shortage Source: Gal et al. (2019) Increase in productivity growth associated with a ten percentage point increase in the diffusion of high-speed broadband, for specific skill shortages 2nd complementarity: between digital technologies and skills
  • 20. Higher bang-for-the-buck from packaging reforms 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% Improving work practices Enhancing reallocation and digital trade Additional effect from joint action Effect on productivity from joint policy action after three years Source: Sorbe et al. (2019) 3rd complementarity: between policy areas
  • 21. 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% Higher use of high-speed broadband Upgrading skills (technical and managerial) Reducing regulatory barriers to competition and reallocation Easier financing for young innovative firms Reducing barriers to digital trade Higher use of e- government 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) Source: Sorbe et al. (2019)
  • 22. Elements that could help solve the productivity puzzle and find the “holy grail” 1. Low digital diffusion 2. Stronger productivity benefits from digitalisation for the best performers 3. Strong complementarity of both adoption and its productivity benefits with intangible investments that are especially hard to implement for laggards 4. Sobering productivity effects from skill gaps that are especially difficult to fill for laggards
  • 23. The following policy priorities emerge … • Regulatory frameworks that support investment in broadband and pro- competition reforms in telecommunication sectors to enable broader and cheaper access to high-speed internet; • 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 Some of these policies can also support inclusiveness (e.g. skills)
  • 24. What’s in it for Germany? 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% Higher use of high-speed broadband Upgrading skills (technical and managerial) Reducing regulatory barriers to competition and reallocation Easier financing for young innovative firms Reducing barriers to digital trade Higher use of e- government Effect on firm productivity (through digital adoption) in Germany of closing half of the gap with best performing country in a range of areas; effect after 3 years OECD average
  • 25. All papers can be found on our dedicated website http://www.oecd.org/economy/growth/digitalisation-productivity-and- inclusiveness Alain.DeSerres@oecd.org Giuseppe.Nicoletti@oecd.org Christina.Timiliotis@oecd.org Stephane.Sorbe@oecd.org Peter.Gal@oecd.org
  • 27. Adoption by firm size (2017) Source: Eurostat
  • 28. Skill shortages Germany vs OECD (2011) -0.005 0 0.005 0.01 0.015 0.02 0.025 Computers and Electronics Management of Personnel Resources Resource Management Skills Technical Skills OECD DEU Source: Skills for Jobs OECD