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ICT, SKILLS AND GERMAN INDUSTRY PRODUCTIVITY – The Interdependency of High-Skilled Labor and ICT Investments. Thomas Strobel The 2008 World Congress on National Accounts and Economic Performance Measures for Nations , Washington D.C., 05-15-2008. Motivation. Labor productivity growth:
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ICT, SKILLS AND GERMAN INDUSTRY PRODUCTIVITY– The Interdependency of High-Skilled Labor and ICT Investments Thomas Strobel The 2008 World Congress on National Accounts and Economic Performance Measures for Nations, Washington D.C., 05-15-2008
Motivation • Labor productivity growth: • US experienced two productivity surges 1995 & 2000 • Germany experienced dual productivity declines • Sources of US productivity surges: • ICT-producing and -using industries (e.g. Stiroh, 2002; Stiroh & Botsch, 2007) • Germany: • Much weaker ICT (using/producing) effects, unable to offset demise of other industries (Eicher & Roehn, 2007, Eicher & Strobel, 2008)
Motivation • What if we look at the interaction of ICT and skills? What can we learn about German industry performance and productivity contributions? • Capital-skill complementarity: Griliches (1969) extended to ICT capital-skill complementarity (e.g. Brynjolfsson et al., 2002) • Skill-biased technological change (e.g. Acemoglu, 1998, 2002, Aghion, 2002, and Hornstein et al. 2005, O’Mahony et al., 2002) • Focus: High-skill intensity of industries • Share of high-skilled hours worked in total hours worked ( EU KLEMS) • High skilled = university graduates • Available for 14 industries, higher aggregates are imputed at lower sectoral levels of aggregation • Industry classification: High-skill-intensive are those who are above the median
Growth Accounting Databases: German Capital Accounts • Ifo Productivity Database (Roehn et al., 2007, available at http://faculty.washington.edu/te/growthaccounting/): Software investment shares in intangible assets and industry-level software investment based on Ifo study (Hermann and Mueller, 1997) and additional surveys conducted by the Ifo Investment Survey (1998, 1999, 2000). • Ifo Investment Survey:Follows the EU guidelines for harmonized business surveys (contains 70,000 German firms). It is established as an excellent leading indicator of German investment and is also incorporated in a number of other leading indicators (e.g. European Commission’s Economic Indicators of the Euro Zone).
Disaggregating German Labor Productivity: Growth Accounting (Jorgenson, Stiroh, and Ho, 2005) • General productivity decline in 1991–2005 (Eicher & Roehn, 2007) • Decline in hours reallocation • Steady capital deepening • Weaker TFP growth post 2000
Disaggregating Labor Productivity: ICT Capital DeepeningAccounting for High-Skill Intensity • ICT Capital Deepening • ICT capital deepening in other industries declined, high-skill intensive industries highest during 1996–2000 • ICT capital deepening strongest in high-skill-intensive services throughout all periods
Disaggregating Labor Productivity: Total Factor Productivity Accounting for High-Skill Intensity • Total Factor Productivity • TFP growth quite low in high-skill-intensive industries due to weak performances of services industries • TFP divergence in high-skill-intensive manufacturing and services sectors post 1995 (bifurcation into positive and negative TFP growth contributions)
Disaggregating Labor Productivity:Accounting for High-Skill Intensity • Descriptive trends • High-skill-intensive industries: • Higher ICT capital deepening, but • lower TFP growth, especially due to services • Other industries: • Falling ICT capital deepening and • stronger TFP growth during 1995–2000, but weaker again post 2000 • Formal testing (on a more disaggregate level) • Are there statistically significant differences from ICT capital deepening on productivity growth for high-skill-intensive compared to other industries? • Econometric testing approaches
Isolating Industry Productivity Differences Estimation Strategy for Total Factor Productivity Growth • Description of variables: • TFP = Total factor productivity • kICT = ICT capital deepening (spillover effects) • HSINT = Dummy for high-skill-intensive industries (j industry groups) • D = Time dummy (t years) • Econometric approaches: OLS and fixed effects regressions • Separately estimated for goods producing and services industries (allowing for parameter heterogeneity)
Isolating Industry Productivity Differences:OLS and Fixed Effects – TFP Growth (Goods Prod.) TFP growth differentials: High-skill intensive and other industries Notes: Significance levels: * significant at 10%; ** significant at 5%; *** significant at 1%.
Isolating Industry Productivity Differences:OLS and Fixed Effects – TFP Growth (Services) TFP growth differentials: High-skill intensive and other industries Notes: Significance levels: * significant at 10%; ** significant at 5%; *** significant at 1%. • Business Services could not reap productivity gains from ICT • Comprise around 16% of market economy value-added • Exhibit strong negative drag on services’ aggregate TFP growth
Conclusion • There is an ICT-skill complementarity for German industries • High-skill-intensive industries have higher ICT capital deepening, especially in the services sectors • ICT capital deepening in other (non-high-skill-intensive) industries is steadily declining • ICT and skills enhanced industries’ productivity performance • There are productivity increasing effects from ICT capital deepening in high-skill-intensive goods producing and services industries, especially post 1995 (cp. TFP growth regressions) • Negative total factor productivity growth in high-skill-intensive services (cp. growth accounting exercises) is due to weak performance of Business Services • Potential explanations • Measurement of services output • Regulations might hinder ICT diffusion (Nicoletti et al., 2006) • Share of high-skilled workers too low (e.g. brain drain)
