Service Industries, Capital Intensity, and Labour Productivity

Ville Kaitila

No 127, ETLA Working Papers from The Research Institute of the Finnish Economy

Abstract: 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.

Keywords: Service industries; Productivity; Capital intensity; ICT; R&D; Software and databases (search for similar items in EconPapers)
JEL-codes: C23 O14 O30 O47 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2025-03-27
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