How to Not Miss a Productivity Revival Once Again

Abstract

Over the past 15 years, productivity growth in advanced economies has significantly slowed, giving rise to the productivity paradox of the New Digital Economy – that is, the notion of increased business spending on information and communication technology assets and digital services without a noticeable increase in productivity. We argue that time lags are the most important reason for the slow emergence of the productivity effects from digital transformation. This paper provides evidence that underneath the slowing productivity growth rates at the macro level, signs of structural improvements can be detected. In the United States most of the positive contribution to productivity growth is coming from the digital producing sector. The Euro Area and the United Kingdom show larger productivity contributions from the most intensive digital-using sectors, although the United Kingdom also had a fairly large number of less intensive digital-using industries which showed productivity declines. We also find that increases in innovation competencies of the workforce are concentrated in industries showing faster growth in labor productivity, even though more research is needed to identify causality. Finally, we speculate that as the recovery from the COVID-19 recession gets underway the potential for significant productivity gains from digital transformation in the medium term is larger than during the past 15 years.

Productivity and the pandemic: short-term disruptions and long-term implications

“…Overall we conclude that, after adjusting for the large industry reallocation effects, and with the notable exception of the collapse in productivity in the hospitality and culture sector, the within-industry growth patterns during the pandemic showed no clear deviation from the slowing long-term productivity trend as established in our earlier work (van Ark et al 2019 , 2021 ).…”

“…We also find that the productivity performance in medium-intensive work-from-home industries is better than in high-intensive ones, suggesting that the former may be showing signs of catching up with the latter. Yet, after taking account of the productivity impact of the collapse in the hospitality and culture sectors, the remaining within-industry productivity growth patterns during 2020 do not exhibit a clear deviation from the slowing long-term trend productivity trend established in our earlier work (van Ark et al 2019 , 2021 ).…”

“…The third taxonomy, which looks at digital transformation more broadly, provides a somewhat more favourable perspective on the productivity impact of new digital technologies introduced during the pandemic. Distinguishing industries by their usage of digital technology, including industry purchases of ICT goods and services, the share of ICT specialists in total employment and the share of turnover from online sales, we found better long-term performance in above-average digital intensive industries during the pre-pandemic period (van Ark et al 2019 , 2021 ). During the pandemic, above average digital-intensive industries showed higher productivity growth than below-average ones.…”

“…The third taxonomy looks at the digital intensity of sectors, following our earlier work on digital transformation and productivity growth (van Ark et al 2019 , 2021 ). For this, we adopted the digital intensity taxonomy developed by the OECD, which uses multiple dimensions of digital transformation related to technology, market and human capital-related features (Calvino et al 2018 ).…”

“…And even though US productivity in the past decade was mostly driven by high productivity in digital producing industries, above-average digital-intensive industries outperformed the least intensive ones by a wide margin. Examples of strong productivity growth in intensive digital-using industries include many services industries, such as finance, trade and business services (van Ark et al 2019 , 2021 ).…”