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

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.