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University of Groningen. What do We Know about Services Productivity in Europe? Bart van Ark University of Groningen and The Conference Board CPB Workshop on "Productivity in services: Determinants, international comparison, bottlenecks, policy" 10 June 2004, The Hague. - PowerPoint PPT Presentation


  • What do We Know about Services Productivity in Europe?Bart van ArkUniversity of Groningenand The Conference Board

    CPB Workshop on "Productivity in services: Determinants, international comparison, bottlenecks, policy"10 June 2004, The Hague

    University of Groningen

  • Set Up of PresentationEvidence on services productivity as source of productivity slowdown in EU-15:56-industry leveltaxonomies (ICT using, skills, innovation type)The suspects explaining the European productivity slowdown:measurementICT and innovation in servicesthe role of marketsRoads forward to support services productivity growth:innovation policies and improved framework conditionsbusiness strategies focused on intangible capital formation

  • GGDC StudiesBart van Ark, Robert Inklaar and Robert H. McGuckin (2003), "Changing Gear: Productivity, ICT and Service Industries in Europe and the United States", in J.F. Christensen and P. Maskell, eds., The Industrial Dynamics of the New Digital Economy, Edward Elgar, pp. 56-99 (with TCB, updated)Mary OMahony and Bart van Ark, eds. (2003), EU Productivity and Competitiveness: An Industry Perspective. Can Europe Resume the Catching-up Process?, DG Enterprise, European Union, Luxembourg (downloadable from (with NIESR; updated) Bart van Ark, Lourens Broersma and Pim den Hertog (2003), "Services Innovation, Performance and Policy: A Review", Research Series No. 6, Directorate-General for Innovation, Ministry of Economic Affairs, The Hague (with Dialogic).Robert Inklaar, Mary O'Mahony and Marcel Timmer (2004), ICT and Europe's Productivity Performance; Industry-level Growth Account Comparisons with the United States, Research Memorandum GD-68, Groningen Growth and Development Centre Robert McGuckin, Matthew Spiegelman and Bart van Ark (2004), Retail Productivity in Europe and U.S., The Conference Board (forthcoming)

  • Two GGDC data basesIndustry Labour Productivity Database: series on nominal and real value added, employment and hours, 56 industries for 15 EU countries and U.S., 1979-2002 (updated)applies U.S. hedonic deflators for ICT to ICT-producing industriesindustry aggregation on the basis of Tornqvist weightingIndustry Growth Accounting Database: above + series for six asset types (of which three ICT), three skill levels, 26 industries for 4 EU countries (France, Germany, UK and Netherlands) and U.S., 1979-2001

  • Can the European Union Resume the Catching Up-Process?-4%-10%-5%-8%

  • Much variation across across industriesLabour Productivity Growth for 12 Main Sectors, EU and U.S., 1979-2002

  • Most important results on labour productivity at level of 56 industriesU.S. productivity growth advantage over Europe is not ubiquitous:In just over 50% of industries, U.S. labour productivity growth is faster than in EU (market services and high tech manufacturing) from 1995-2002Only a limited number of service industries account for U.S. advantage in productivity growthAt the same time there is a lot more dynamism in U.S.:Industries with above 2% productivity growth are much more present in U.S. than in EUIn two-thirds of industries, U.S. labour productivity growth accelerates in 1995-2002 over 1990-1995Whereas in almost three quarters of industries, EU labour productivity growth slows down

  • Contribution of largest contributors in U.S. is substantial strongly dominated by servicesContribution to aggregate labour productivity of 5 largest and 5 least contributing industries in U.S., U.S. and EU, 1995-2002

  • Contribution of largest contributors in Europe is smaller and mainly in high tech manufacturingContribution to aggregate labour productivity of 5 largest and 5 least contributing industries in EU., U.S. and EU, 1995-2002

  • Much variation by industry across countries: Retail

  • Much variation by industry across countries: Banks

  • Much variation by industry across countries: Telecommunication Services

  • Variation across industries seems to be related to aggregate productivity growth rate and somewhat dependent on size of country: Total Economy

  • although less so when looking at Market Services only

  • Suspect 1: Measurement problems hamper adequate assessment of service productivityFew good studies on how big is the measurement problem concerning services productivity:on U.S.: Triplett, J.E. and B. Bosworth (2002) Baumol's disease has been cured: IT and multifactor productivity in U.S. services industries, Brookings Institution, Washington D.C.International: Anita Wlfl (2003), Productivity growth in service industries an assessment of recent patterns and the role of measurement, STI-Working Paper 2003-07, (Paris: OECD)Some attempts to improve measurement of services output:Brookings workshops on Measuring service sector output and methodological improvements by BEA and BLS, in particular in area of financial servicesEurostat, Handbook on price and volume measures in national accounts, Luxembourg, 2001

  • Source: Anita Woelfl (2003)

  • We cannot be sure of the bias in service output measurementOver time:Increased size of services has impact on aggregate (Griliches, 1992; 1994)Increased complexity of services --> multidimensionality and quality improvementBut methodological changes in e.g. financial services do not show bias in only one directionAcross countries:Countries apply different methodologies (e.g., retail)Part of service output measures is still based on input measures, in particular in non-market services, but there are differences in degree between countries Measurement of PPPs in services is complicated, depending on share of intermediate inputs in gross output

  • Primarily computers and other ICT goods. Solvable by using hedonic price indices, which is possible provided data availabilityPrimarily "customised" services and public services (education, health, etc.). Should be tackled by detailed analysis of multiple dimensions of output by industry. Difficult both in methodological terms as well in terms of dataPrimarily semiconductors. Can be solved with hedonic price indices, provided data availability and investment flow matrices. Primarily ICT capital input. Can be solved by adjusting nominal input series with hedonic price indices. Feasible provided availability of investment flow matrices.Measurement problems due to increased share of ICTB. van Ark, Measuring the New Economy, Review of Income and Wealth, March 2002





  • LP advantages in U.S. services are translated in TFP advantages, as U.S. investment in ICT is only slightly higherSource: Inklaar, OMahony and Timmer, 2003

  • Suspect 2: Service Industries do Not Sufficiently InnovateICT investment is an important enabler of innovation and productivity growth and U.S. has been more successful in obtaining productivity effects from ICT investment than EUBut productive use of ICT investment is strongly dependent on various dimensions of non-technological innovationsProductivity effects are strongest in services with supplier dominated innovations or strong organizational innovations

  • ICT taxonomy points to main differentials in ICT-using servicesLabour productivity by Industry Group on the basis of ICT taxonomy,EU and U.S., 1995-2002Outside ICT-producing, EU manufacturing has productivity advantage but this advantage is eroding

  • Complementarity of technological (ICT) and non-technological innovationsCase studies:Company evidence (McKinsey)SIID studies on service innovation combined with firm micro firm level studies (van Ark et al., 2003)Combined evidence from macro and sector studies (TCB Retail study)Micro firm level studiesSpecial organizational and work practice surveys on U.S (Brynjolffson and others, Black & Lynch)Recent international work (OECD/Bartelsman, Hempell, van Leeuwen/vd. Wiel)Macro approaches:Analysis of TFP residuals with use of R&D, innovation measures (OECD)Cluster research with I/O and CIS tables (Broersma in van Ark et al., 2003)Intermediate input use of KIBS as proxy for organizational innovation (Broersma and van Ark, 2004)

  • Innovators in services strongly combine technological and non-technological innovationsSource: CBS, Kennis en Economie

  • A four dimensional typology of service innovation used in SIID studiesSource: den Hertog and Bilderbeek (1999)

  • New measures of innovation according to4-D innovation model look promisingSource: De Jong et al, EIM, 2004

  • Characteristics of service innovationMultidimensionality is the ruleDimensions are often renewed in other sectors through new combinationsThe weights of dimensions change over timeICT facilitates in many cases, but is not sufficient nor always necessaryNext to industry characteristics, firm strategies matterService innovations take place along the whole value chainCo-operation (co-producing, co-innovating) takes place a lotDe- and re-regulation is important but impact is diverse

  • The services sector is characterized by distinct innovation clusters

  • Towards a service innovation taxonomy (developed from Pavitt, 1984)

  • US advantages are strongest in supplier dominated services, organizational innovative services and client led servicesLabour productivity by Industry Group on the basis of combined Pavitt/SIID taxonomy, EU and U.S., 1995-2002

  • Non-technological innovations mainly arise from investment in intangible inputs

  • Intangibles inputs are key in facilitating the innovation process and creating more productivity

  • Intensive IT users have relatively high intermediate purchases from knowledge intensive business services (KIBS), which can be used as proxy


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