The level of labor productivity in the Finnish services sector has been lower and growing more slowly than in Sweden during the 2010s, especially in digital services. Sweden’s faster productivity growth has been driven more strongly by intangible investments such as software, data and innovation, whose impact on labor productivity has been significantly greater than in Finland. The impact of ICT capital in the Swedish digital services sector has been up to five times higher than in Finland.
In Sweden, the share of R&D spending within the corporate Service sector is larger, and investments are more strongly focused on digital services, whereas in Finland, the emphasis is on traditional services. This is reflected in Sweden’s broader adoption of e-commerce and advanced technologies, such as artificial intelligence and sophisticated website features. Moreover, Sweden’s stronger emphasis on digital services is also reflected in its exports of services, which are set to grow to 17 percent of GDP in 2023, compared to 12 percent in Finland.
Educational attainment is a critical driver of productivity growth. Sweden outpaces Finland in the share of its population with tertiary education and PhDs. Achieving Finland’s higher education targets will necessitate significant structural reforms, including increasing Private funding and expanding educational opportunities.
The impacts of regulation and competition on productivity disparities between the Finnish and Swedish service sectors remains insufficiently explored. In Finland, the narrowing productivity gap in digital services between 2010 and 2022 points to reduced competition, which diminishes firms’ incentives to invest in research and development. This dynamic may partly explain the lower R&D investments observed in Finland’s service sector. A comprehensive analysis of the relationship between regulation, competition and productivity in both countries would require in-depth and meticulous research.
Tehokkaan Tuotannon Tutkimussäätiö, julkaisusarja, nro 10.
