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The role of services sectors for aggregate productivity: A firm-level anatomy of a large panel of European firms

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  • Bruno Merlevede
  • Annelies Van Maele

Abstract

This paper documents how the composition of value added per worker in Europe is distributed across manufacturing, services, and other industries, using a large panel of firm-level data. Services account for approximately two-thirds of aggregate value added in Europe, a pattern we confirm by benchmarking our firm-level data against macroeconomic aggregates. We show that the observed macroeconomic slowdown in labor productivity is also evident in our micro-economic data. Focusing on productivity within service sectors, we highlight the central role of services in shaping overall productivity trends. We further investigate whether semi-parametric productivity estimators —-commonly used in the productivity literature–align with labor productivity. Given the different methodologies and assumptions, we find differences in alignment in these estimators, highlighting the need for methodological adaptations, especially for estimating TFP in services industries. Further, we decompose labor productivity growth into the contributions of entrants, incumbents, and exiting firms, and find that these dynamics differ between manufacturing and services. Entry and reallocation dynamics in services differ from those in manufacturing, with distinct implications for how productivity evolves at the aggregate level. Finally, we explore how regulation affects productivity growth and its components, using the OECD ETCR-indicator as a proxy for regulatory intensity in network sectors. Our results show that regulation has a stronger effect on manufacturing than on services, with implications for the allocation and reallocation of resources across firms. These findings contribute to a more nuanced understanding of productivity measurement and dynamics in the service-based economies of Europe.

Suggested Citation

  • Bruno Merlevede & Annelies Van Maele, 2025. "The role of services sectors for aggregate productivity: A firm-level anatomy of a large panel of European firms," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 25/1109, Ghent University, Faculty of Economics and Business Administration.
    • Handle: RePEc:rug:rugwps:25/1109
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • L80 - Industrial Organization - - Industry Studies: Services - - - 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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