Boosting Labour Productivity in Service Sectors with Investments

Ville Kaitila

No 159, ETLA Brief from The Research Institute of the Finnish Economy

Abstract: Abstract Labour productivity in service industries in Finland is lower than in peer countries on average. The difference in the capital-stock-to-hours-worked ratio is even greater. We analysed five service industries in Europe, the United States, and Japan in 1995–2023. Labour productivity is strongly and positively related to how large the capital stock is in relation to the labour input and how high the level of education of the workforce is. Tangible capital, i.e. information and communication technology and traditional fixed capital (buildings, machinery, and transport equipment), is important, but so is intangible capital, i.e. software, and research and development. The results highlight the importance of investments for productivity growth in service industries and support policy measures that encourage companies to make long-term capital investments. In addition, policy measures to increase the level of education and, among other things, to improve the functioning of competition and markets in Finland are important.

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: 10 pages
Date: 2025-05-21
New Economics Papers: this item is included in nep-eff and nep-ict
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