The Human Side of Productivity -The role of skills and diversity for firm productivity

See also at oe.cd/hsop

The Human Side of Productivity The role of skills and diversity for firm productivity Peter Gal Senior Economist for the OECD Global Forum on Productivity Joint with Chiara Criscuolo, Timo Leidecker and Giuseppe Nicoletti and supported by participating national institutions 2021 Annual Conference of the GFP/G20 | 8 July 2021 | Venice, Italy

Acknowledgements Belgium

Central Bank

Costa Rica Central Bank

Emmanuel Dhyne, Gert Bijnens Alonso Alfaro Urena, Catalina Sandoval Alvarado, Evelyn Munoz

Denmark

Ministry of Industry, Business and Financial Affairs

France

CASD

Germany

IAB Nuremberg / HU Berlin

Alfred Garloff

Hungary

Ministry of Finance

Peter Toth, Istvan Szabo, Andras Svraka, Katalin Horvath, Balint Van, Tibor Keresztely

Italy

ISTAT INAPP and University of Milan

Caterina Viviano, Patrizia Cella, Maria Carla Congia, Fabio Bacchini; Giorgio Barba Navaretti, Anna Rosso,Camilla Andretta

Japan

Institute of Economic Research, Hitotsubashi University

Ryo Kambayashi

Portugal

Ministry of Economy, Statistics Portugal Ricardo Alves

Sweden

Growth analysis

OECD colleagues

Søren Gaard, Katrine Bagge Thorball, Magnus Skafte-Larsen, Louis Konstantyner

Pontus Mattsson Patrick Lenain, Alexander Hijzen, Mariagrazia Squicciarini, Lea Samek, Glenda Quintini, Oliver Denk, Wouter Zwysen

Motivation: why the productivity differences across firms?

• Widespread & persistent differences across firms

Productivity gaps across firms within the same country and industry

• US: Bartelsman and Doms (2001); Syverson (2011)

• Globally: GFP (Andrews, Criscuolo, Gal; 2016) • Within countries: OECD MultiProd (Berlingeiri et al, 2017)

 Large potential aggregate productivity gains from the catch-up of lagging firms • But technology is becoming cheaper, so it must be other factors…

• What about the Human Side?

Skills, management, diversity, organisation

Frontier

1

normalised to 1

1/2

Medium performer 1/4

Laggard

1/8

1/16 CRI HUN PRT DEU ITA BEL FRA SWE DNK JPN*

Upshot The “Human Side” accounts for nearly 1/3rd of the gap

Productivity gap

100%

Productivity frontier

80% 60% 40% 20% 0%

Capital (20%)

Human Side (31%) Medium performer

Workforce composition along: 1. Skills 2. Managerial structure 3. Gender & Cultural Diversity

The Human Side of Productivity 1. The role of skills

Firms at the productivity frontier employ a more skill-intensive workforce…

Labour productivity (VA/L) segments within detailed industries

… with key sectoral differences 100%

58%

37%

4%

Workforce skill composition

16% 19% 80% 60%

50% 56%

40% 20%

23% 29%

53% 52%

31% 27%

25% 19%

ive services

19%

low skilled 5%

29%

58%

50%

medium skilled 43%

0%

ontier

high skilled52%

52% 37%

31%

19%

4%

Median Frontier

Median Frontier

Median Frontier

Less Manufacturing knowledge intensive services

Knowledge intensive services

Less knowledge intensive services

Share of employment:

(18%, ↓)

high skilled medium skilled

low skilled

… with key sectoral differences 100%

6%

7%

Workforce skill composition

6%

23% 80% 60%

53%

16%

52%

56%

19%

23% 58%

52%

58%

50%

53%

20% 25%

27%

0%

dian Frontier

anufacturing

25% 5%

37% 4%

MedianMedian FrontierFrontier

43%

37%

31% 5%

high skilled

29%

50% 52%

40%

43%

29%

19%

19%

4%

MedianMedian FrontierFrontier

medium52% skilled

31%

low skilled

19%

Median Frontier

Manufacturing Knowledge intensiveKnowledge services intensive Less knowledge services Less knowledge intensive services intensive services (ICT, professional services )

Share of employment:

(18%, ↓)

(15%, ↑)

high skilled medium skilled

low skilled

… with key sectoral differences 100%

Workforce skill composition

16% 80% 60%

19%

23% 52%

56%

58%

50%

53%

52%

40% 20%

43% 27%

37%

25% 5%

0%

29%

31%

19%

4%

Median Frontier

Median Frontier

Median Frontier

Manufacturing

Knowledge intensive services

Less knowledge intensive services

Share of employment:

(18%, ↓)

(ICT, professional services) (15%, ↑)

(46%)

high skilled medium skilled

low skilled

High-skill use is concentrated at top firms in each country, though to varying degrees

… and there are different skills strategies of the top firms in various countries Percentage point gap medium-to-top performer in the share of high skilled

0.14 0.12

FRA

HUN BEL*

0.10

CRI

0.08

PRT

0.06

ITA*

SWE

DNK

0.04

JPN*

DEU

0.02 0.00 -0.08

-0.06

-0.04

-0.02

0.00

Percentage point gap medium-to-top performer in the share of medium skilled

0.02

… and there are different skills strategies of the top firms in various countries Percentage point gap medium-to-top performer in the share of high skilled

0.14 0.12

High skill focus FRA

HUN BEL*

0.10 0.08

PRT

0.06

CRI SWE

ITA*

DNK

0.04

JPN*

DEU

Medium skill focus

0.02 0.00 -0.08

-0.06

-0.04

-0.02

0.00

Percentage point gap medium-to-top performer in the share of medium skilled

0.02

Differences in the use of specific skills are even more pronounced

Frontier

Largest observed gap

Differences in the use of specific skills are even more pronounced

Frontier

Largest observed gap

Differences in the use of specific skills are even more pronounced

Frontier

Largest observed gap

The Human Side of Productivity 2. The role of managers

More productive firms devote more human resources to formal managerial roles in services Share of managers

18% 15% 12% 9% 6% 3% 0% Manufacturing

Laggard

Less knowledge Knowledge intensive services intensive services Medium

Frontier

Higher manager-share associated with productivity gains, but to varying degrees across countries 7

10%

6

8%

5 4

6%

3

4%

2 2%

1 0

0% PRT

SWE

DNK

HUN

CRI

FRA

Productivity gains (right axis) Gap in share of managers (ppt, left axis)

Manager skills matter disproportionately… ... and are most effective in combination with skilled workers Productivity gains from upskilling either managers or workers* Productivity gains from upskilling same number of employees

4%

3%

2%

1%

0% Managers

* Upskilling 1% of the workforce

Workers

Sources of productivity gains when upskilling the total workforce

The Human Side of Productivity 3. The role of diversity

Gender- and culturally diverse firms are more productive Gender diversity

Cultural diversity

Productivity premium

9%

Managers

Workers

6%

3%

0% 0% -3%

5%

25%

50%

Share of foreign cultural background

The Human Side of Productivity Adding it all up & the role of policies

Closing the productivity gap through the Human Side Cultural diversity (7%) Gender diversity (5%) Skill structure (21%) Management structure (2%)

A range of public policy areas to support investments in the Human Side

Supply

Managerial structure Management training

Skills

Gender diversity

Cultural diversity

Education & training

Social benefit and tax system

Immigration policies

A range of public policy areas to support investments in the Human Side

Supply Upgrade

Managerial structure

Skills

Gender diversity

Cultural diversity

Management training

Education & training

Social benefit and tax system

Immigration policies

Information campaigns

Training by firms

Gender quotas

More in OECD Skills Outlook (2021)

A range of public policy areas to support investments in the Human Side Skills

Gender diversity

Cultural diversity

Management training

Education & training

Social benefit and tax system

Immigration policies

Upgrade

Information campaigns

Training by firms

Gender quotas

Mobilise

Better match workers to jobs through mobility and flexible working arrangements, e.g. telework, transport, housing

Supply

& Match

Managerial structure

 The SUM of various measures are needed

See also at oe.cd/hsop

Thank you Productivity@OECD.org oe.cd/gfp