OECD Global Forum on Productivity Workshop - Berlin - 15 September 2017,Eckhardt Bode Kiel Institute for the World Economy

1. Digitalization and Productivity
Some empirical evidence and measurement issues
Eckhardt Bode
Kiel Institute for the World Economy
eckhardt.bode@ifw-kiel.de

2. 1. Availability of internationally comparable data
2. ICT measurement issues
3. Productivity slowdown
a. Digitalization: What went wrong in Europe around 2000?
b. What went wrong in Germany after 2005?
4. Conclusions
Bickenbach et al. (2016), “Produktivität in Deutschland – Messbarkeit und Entwicklung“.
Study for the German Federal Ministries of Economic Affairs and Energy and of Finance
Agenda

3. Data availability
Eurostat EU KLEMS OECD STAN
OECD
Productivity
Statistics
Statistisches
Bundesamt
Industry classification ISIC Rev.4
ISIC Rev.4
ISIC Rev.3
ISIC Rev.4
ISIC Rev.3
ISIC Rev.4 ISIC Rev.4
Time 00–13
Rev.4: 70–10
Rev.3: 70–07
Rev.4: 70–11
Rev.3: 80–09
95–15 91–15
Real capital stock
/ by … types
 / div.
Rev.4:  / 8
Rev.3:  / 10
 / – —  / 2
Real capital services
/ by … types
—  / 2 — — —
Persons engaged /
/ by … types
 / – Rev.3:  / 18  / –  / –  / –
Hours worked
/ by … types
 / – Rev.3:  / 18  / – —  / –
Real intermed. inputs
/ by … types
—
Rev.4:  / 3
Rev.3:  / –
 / – —  / –
Availability of basic data for comparative productivity analysis at
industry level (publicly accessible, downloadable)

4. • ICT measurement is particularly shaky
• Volumes and prices of ICT goods and services
are particularly difficult to measure
• Rapid quality improvements not reflected by increasing sales prices
–> Quality improvements frequently understated
• Large heterogeneity (immaterial goods, unique products/services)
• Imperfect competition among producers (innovation/monopoly
rents, pricing policies)
• Short product cycles, rapid depreciation
• Deficits in measurement of quality of human capital inputs
• Extensive estimation under restrictive assumptions
• Estimation methods differ across countries
Measurement issues

5. • Hedonic methods
• Have arguably improved quality of price estimation for hardware
• Traditional methods frequently exaggerated price increases
• Are more expensive than traditional methods
(e.g., data requirements)
–> Capacity restrictions for smaller statistical offices
• International differences in methods data quality (in spite of SNA)
Measurement issues

6. Use of hedonics by statistical offices
Measurement issues
Source: Wells/Restieaux (2014).

7. Measurement issues
Financial services Producer services
(Gross) Capital stock
Capital services
• Internationally harmonized estimation of capital services
• OECD, KLEMS; based on available national data
• Large differences to price indices estimated by national offices
• Improvement of data quality?
Price indices for capital inputs, German ICT-intensive services

8. Measurement issues
National
deflators
ICT intensity
(national deflators)
ICT intensity
(US deflator)
ICT deflators and ICT intensity: International comparison (KLEMS)
(Similar, more detailed: Ahmad/Ribarsky/Reinsdorf OECD 2017)
ICT intensity
(nominal)

9. Effects on productivity growth
Mismeasurement of ICT capital does likely not contribute much
to explaining global productivity slowdown
• Max. 0.2 %-points p.a.
(Byrne/Fernald/Reinsdorf 2016, Ahmad/Ribarsky/Reinsdorf 2017)
Nonetheless:
Better data needed to verify its low contribution
Measurement issues

10. • Mid-1990s – mid-2000s:
• ICT boom in USA & UK
• No ICT boom in continental Europe
 Slower productivity growth than in USA / UK
• Since mid-2000s:
• No ICT boom in USA & UK nor Europe
 Roughly similar productivity growth than in US / UK
 What went wrong in Europe around 2000?
 What went wrong in the developed world after 2005?
Productivity slowdown
Germany

11. Productivity slowdown
Source: KLEMS (ISIC 3)
What went wrong in Europe around 2000?
Growth decomposition (labor productivity, KLEMS)

12. Productivity slowdown
Source: Statistisches Bundesamt (ISIC 4)
Growth decomposition (labor productivity, Destatis)

13. • Possible (plausible) reasons for US-EU productivity
growth gap in late 1990s & early 2000s
• “US Home Bias” Hypothesis
• European markets are more fragmented (cultures, border impediments)
• Higher regulation of product and labor markets in Europe
• “US Management” Hypothesis
• Less rigorous adjustment of firm organization and product lines
• “Americans do IT better” (Bloom/Sadun/Van Reenen 2012)
• Firm size distribution
• Less economies of scale and scope from ICT in smaller firms
Productivity slowdown

14. What went wrong in Germany after 2005?
• Demographics
• Slightly fostered productivity growth in the 1990s (ca. + 0.2 %-pts p.a.)
• Slightly impeded productivity growth in the 2000s (ca. –0.2 %-pts p.a.)
• Little effect in the 2010s
• Labor market effects (since mid-2000s):
• Hartz reforms, immigration & wage moderation (–0.4 to –0.8 %-pts p.a.)
No significant effects from
• Weak human capital accumulation
• Outsourcing
• Capital misallocation through credit expansion
Productivity slowdown

15. Wage moderation
Hours worked
(% change p.a.)Real unit labor costs
(2010=100)

16. Mechanism:
Wages increase by less than productivity (& prices)
 Employment increases (higher demand),
which depresses
 Lower labor productivity & capital intensity growth
 Sluggish adjustment of capital stock
 Labor productivity growth remains low
until capital stock growth accelerates
Wage moderation

17. Wage moderation
capital
intensity
(2010 €/h)
capital stock
growth
Slower growth of capital intensity since 2004 reduced labor
productivity growth by 0.8 %-points (=0.35)
• 0.4%-pts due to increasing employment (–> wage moderation)
• 0.4%-pts due to slower capital stock growth

18. Wage moderation
Simulation: Effects of no wage moderation of labor productivity 2004-2015
Actual
No wage moderation
Labor productivity (hours) Real unit labor cost
EmploymentHours worked

19. Simulation results:
• Wage moderation reduced labor productivity growth
by 0.8-0.9 %-pts p.a. since 2004
• Partial equilibrium model, exogenous GDP
–> Model likely exaggerates effect (no aggregate income effects)
• Capital stock growth has not yet accelerated
• Sluggish adjustment?
• Or other reasons
e.g., comparatively poor investment climate (capital exports)?
Wage moderation

20. • Mismeasurement of ICT likely not causal
for global productivity slowdown
• Institutional factors likely made Germany & continental
Europe miss the first ICT boom until the mid-2000s
• Most of the productivity slowdown in Germany
since 2005 may just be due to
• Demographics
• Labor market reforms
• Wage moderation (+ poor investment climate?)
• Immigration
Conclusions

21. Digitalization and Productivity
Some empirical evidence and measurement issues
Eckhardt Bode
Kiel Institute for the World Economy
eckhardt.bode@ifw-kiel.de
Thank you!