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Productivity in the Finnish Service Industries: Capital Intensity, Labor Allocation, Digitalization, Offshoring and Generative AI

Author

Listed:
  • Kuosmanen, Natalia
  • Kaitila, Ville
  • Kuusi, Tero
  • Kässi, Otto
  • Maczulskij, Terhi
  • Pajarinen, Mika

Abstract

This report examines the factors shaping productivity in Finland’s private service industries. Specifically, we focus on the link between capital intensity and labor productivity, as well as the allocation of labor. In addition, the report highlights the roles of global megatrends, such as offshoring, digital adoption and generative AI, in productivity development. Using firm- and industry-level data, three broad patterns emerge. First, capital intensity in Finnish service industries is consistently below that of peer countries and is closely associated with weaker productivity. Second, firms systematically employ fewer workers than implied by profit-maximizing conditions, with gaps especially pronounced in knowledge-intensive services. Third, digital adoption is uneven: firms with broader use of digital technologies perform better, while many smaller and traditional providers lag behind. Scenario analysis suggests that generative AI could raise economic growth if paired with capital investment, while the offshoring of services does not appear to improve productivity but may support employment and reshape the composition of the workforce. The findings indicate that Finland’s service productivity challenges are long-standing and structural rather than short-term fluctuations.

Suggested Citation

  • Kuosmanen, Natalia & Kaitila, Ville & Kuusi, Tero & Kässi, Otto & Maczulskij, Terhi & Pajarinen, Mika, 2025. "Productivity in the Finnish Service Industries: Capital Intensity, Labor Allocation, Digitalization, Offshoring and Generative AI," ETLA Reports 167, The Research Institute of the Finnish Economy.
    • Handle: RePEc:rif:report:167
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    Keywords

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    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • L80 - Industrial Organization - - Industry Studies: Services - - - General
    • 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
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • 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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