Service Industries, Capital Intensity, and Labour Productivity

Abstract

We analyse the development of labour productivity in five service industries in Europe, the United States, and Japan. Vis-à-vis a group of peer countries, labour productivity in service industries is relatively low in Finland. We further find that the respective gap in capital intensity (capital stock to hours worked) is even greater. Using the growth accounting framework and panel estimations, we find that in 1995–2023 overall capital intensity was positively associated with the level of labour productivity in European countries. This is also the case if the capital stock is disaggregated into four parts with ICT, R&D, software and database, and all other capital analysed separately. Furthermore, the annual change in overall capital intensity, or capital deepening, is positively associated with the change in labour productivity in service industries. The association is weaker when capital is disaggregated into parts, with the strongest association found for the traditional capital stock, while the results for ICT and IPP capital deepening depend on the service industry analysed.

Publication info

Results of research
Boosting Productivity in Services through Digitalisation
Research group
Business renewal
Series
ETLA Working Papers 127
Date
27.03.2025
Keywords
Service industries, Productivity, Capital intensity, ICT, R&D, Software and databases
ISSN
2323-2420, 2323-2439 (Pdf)
JEL
C23, O14, O30, O47
Pages
42
Language
English