Industry contribution to business sector productivity
Understanding the drivers of productivity growth in the business sector requires an awareness of the contribution that each industry makes. The contribution of an individual sector depends not only on its productivity growth but also on its share in total value added and total hours worked.
Over the past 15 years, labour productivity growth was almost entirely driven by manufacturing and business sector services. In the case of manufacturing, this reflects the typically higher productivity growth rates of the sector. In the case of business sector services, the strong contribution also reflects its increasing share in the overall economy. Excluding real estate, business sector services account for about 35 to 50% of total value added and total employment across OECD countries.
When contributions to business sector productivity growth are analysed before and after the crisis, important differences arise. In the Czech Republic, Finland, Hungary, Korea, Slovenia, the Slovak Republic, Sweden and the United States, the productivity slowdown was mainly driven by lower contributions from the manufacturing sector compared with the pre-crisis period. In the Baltic States, Belgium, Greece, Hungary, Luxembourg and the United Kingdom, the slowdown was driven by lower contributions from business sector services.
Definition
Labour productivity growth by industry is defined as the rate of change of real gross value added (in basic prices) per hour worked. The contribution of each sector to labour productivity growth of the total business sector is computed as the difference between the growth rate of value added and that of hours worked, with each weighted by the sector’s share in total nominal value added and total hours worked respectively. Data are presented for those countries for which real gross value added and hours worked by sector are available by ISIC Rev.4 breakdown in the OECD National Accounts Statistics (database). Hours worked comprises the total number of hours worked by all persons employed, i.e. employees and self-employed. For Japan, Korea and the United States, in the absence of national accounts data on total hours worked by main ISIC Rev.4 economic activity, the total number of persons employed (employees and self-employed) is used as the measure of labour input.
Comparability
Business sector refers to non-agricultural business sector excluding real estate activities. Real estate activities are excluded, as value added in this sector includes the imputation made for the dwelling services provided and consumed by home-owners.
In addition to the difficulties encountered in measuring real value added, particularly in the services sector, it is also difficult to accurately measure nominal output in some cases. This is for example the case for the financial services sector, where some financial intermediation services, such as implicit banking charges, are indirectly measured.
Under- or over-estimation of the output of a particular sector, notably for services, will be partially offset by intermediate consumption of this output by other production sectors, and hence their value added. Therefore, while this mis-measurement may have an impact on the comparability across sectors, it may have a smaller impact on overall productivity growth.
References
Inter-Secretariat Working Group on National Accounts (ISWGNA), Task Force on FISIM (2013), Final Report.
OECD Productivity Statistics (database), https://doi.org/10.1787/pdtvy-data-en.
OECD (2001), Measuring Productivity – OECD Manual, https://doi.org/10.1787/9789264194519-en.
Pilat, D. and A. Wölfl (2005), “Measuring the interaction between manufacturing and services”, OECD Science, Technology and Industry Working Papers, No. 2005/5, https://doi.org/10.1787/882376471514.
Wölfl, A. (2003), “Productivity growth in service industries – An assessment of recent patterns and the role of measurement”, OECD Science, Technology and Industry Working Papers, No. 2003/7, https://doi.org/10.1787/086461104618.
