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Boosting Labour Productivity in Service Sectors with Investments

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  • Kaitila, Ville

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.

Suggested Citation

  • Kaitila, Ville, 2025. "Boosting Labour Productivity in Service Sectors with Investments," ETLA Brief 159, The Research Institute of the Finnish Economy.
    • Handle: RePEc:rif:briefs:159
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    More about this item

    Keywords

    Service industries; Productivity; Capital intensity; ICT; R&D; Software and databases;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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