Countries with Higher Tertiary Enrollment Rates

FIGURE 5.5 Global Innovator Services Make Up a Higher Share of Total Employment in Countries with Higher Tertiary Enrollment Rates

Tertiary enrollment rates in relation to share of business and professional services in employment, by country, 2016

Share of business and professional services in total employment (%) 16

14

12

10

8

6

4

2

0 10 20 30 40 50 60 70 80 90 100 Tertiary enrollment rate (%)

Sources: ILOSTAT data, International Labour Organization; World Development Indicators database. Note: The dataset covers 129 countries across regions and income groups. For countries whose enrollment rates are unavailable for 2016, data are for 2015 or 2014.

of customization and the simultaneity of production and consumption that necessitates a close relationship with consumers. It is precisely these skills that slow down the automation of waiters in restaurants or hosts at event venues. In these industries, part of the value of the service would disappear if it were automated. Similarly, market research in the United States shows that the vast majority of consumers would be less likely to use a brand if there were no human consumer representative (Press 2019). The intangibility of many services, which often precludes the writing of complete contracts, also emphasizes these interpersonal skills where trust between the supplier and the buyer is crucial.

Managerial and Organizational Practices to Strengthen Skills within Firms Beyond the capabilities of workers, management capabilities and practices also matter for firm performance (Bloom, Sadun, and Van Reenen 2012). They are crucial elements of the production process but cannot be bought “off the shelf” (Sutton 2012).

The importance of management practices for manufacturing firms has been well established. Among US manufacturing firms, the adoption of “structured” management practices6 alone accounts for an estimated 22 percent of the total factor productivity (TFP) gap between a firm in the lowest and highest decile (Bloom, Brynjolfsson, et al. 2019). This is similar to the contribution of R&D and exceeds the contributions of ICT and human capital. Similarly, cross-country analyses show that roughly a third of differences in GDP could be related to differences in managerial practices (Bloom et al. 2014).

Many of the principles constituting good management practices, although developed with manufacturing firms in mind, also apply to services. For example, the concept of “lean manufacturing”—initially describing practices of Japanese carmakers to tie production more closely to demand—gave way to “lean retailing,” whereby retailers minimize unsold stocks by carefully monitoring sales, allowing for lower inventories (see, for example, Abernathy et al. 1999; Evans and Harrigan 2005).

Sector-specific adaptations of the World Management Survey (WMS) applied to retail (Institute for Competitiveness & Prosperity 2010), health care (Bloom et al. 2020), or education (Bloom et al. 2015) show that measures of adoption of structured management practices—such as the importance to the firm of target setting, monitoring, and incentives—are associated with higher sales (figure 5.6).

Yet an analysis of new firm-level data from 2017–19 World Bank Enterprise Surveys suggests that the adoption of structured management practices is lower among services firms than manufacturing firms7 in 36 of the 48 countries with available data (figure 5.7).8 This finding reinforces new evidence from Mexico (illustrated in Bloom, Iacovone, et al. 2019) that management practices are less correlated with firm size in the services sector, especially in areas with small local markets.

Furthermore, the adoption of management practices in services tends to be higher in higher-income countries, even though the data show substantial variation.9 A comparison of services sectors shows that low-skill sectors (such as retail and hotels and restaurants) exhibit low adoption of structured managerial practices relative to manufacturing firms. Meanwhile, transportation, wholesale, and information technology (IT) services exhibit such practices at levels similar to manufacturing firms (figure 5.8). This pattern holds for both LMICs and high-income countries.

Targeting: Enabling High-Linkage Services for Greater Spillovers

Industrial policy that targets specific sectors has been typically associated with the targeting of “complex goods” associated with the manufacturing sector (Maloney and Nayyar 2018). As LMICs turn increasingly toward the services sector, the