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Digital technologies can boost firm productivity. However, despite ongoing digitalisation, productivity has slowed sharply in most OECD countries over the past two decades.
Looking closer, this aggregate picture masks an increasing divide between a small share of highly productive “superstar” firms, which enjoy relatively strong productivity growth, and the mass of laggard firms where productivity growth has been sluggish.
Digitalisation may explain about half of this divergence, as more productive firms are more likely to efficiently adopt digital technologies than less productive firms.
The resulting increase in the productivity gap between leading and lagging firms has far-reaching implications, as it contributes to widening wage dispersion and income inequalities. A range of policies have a role to play to enable broader and more efficient diffusion of digital technologies.
Most notably, policies should aim at making high-speed internet more widely available, enhancing workers’ technical and managerial skills and enabling the efficient reallocation of workers and capital across firms and industries.
In addition to stimulating productivity, some of these policies can support inclusiveness to the extent that they help lagging firms to catch up, displaced workers to find other jobs and support wage growth.
Upgrading skills is particularly important in this respect. Skill shortages in an industry, for example of managerial or digital-related technical skills, tend to reduce the productivity benefits from digital adoption.
The burden of skill shortages falls predominantly on less productive firms, which often lack the resources to hire the most skilled workers.
Digital technologies can boost firm productivity. However, despite ongoing digitalisation, productivity has slowed sharply in most OECD countries over the past two decades.
Looking closer, this aggregate picture masks an increasing divide between a small share of highly productive “superstar” firms, which enjoy relatively strong productivity growth, and the mass of laggard firms where productivity growth has been sluggish.
Digitalisation may explain about half of this divergence, as more productive firms are more likely to efficiently adopt digital technologies than less productive firms.
The resulting increase in the productivity gap between leading and lagging firms has far-reaching implications, as it contributes to widening wage dispersion and income inequalities. A range of policies have a role to play to enable broader and more efficient diffusion of digital technologies.
Most notably, policies should aim at making high-speed internet more widely available, enhancing workers’ technical and managerial skills and enabling the efficient reallocation of workers and capital across firms and industries.
In addition to stimulating productivity, some of these policies can support inclusiveness to the extent that they help lagging firms to catch up, displaced workers to find other jobs and support wage growth.
Upgrading skills is particularly important in this respect. Skill shortages in an industry, for example of managerial or digital-related technical skills, tend to reduce the productivity benefits from digital adoption.
The burden of skill shortages falls predominantly on less productive firms, which often lack the resources to hire the most skilled workers.
Background Papers:
Digitalisation and productivity: In search of the holy grail – Firm-level empirical evidence from EU countries by Peter Gal, Giuseppe Nicoletti, Theodore Renault, Stéphane Sorbe and Christina Timiliotis
Digital technology diffusion: a matter of capabilities, incentives or both? by Dan Andrews, Giuseppe Nicoletti and Christina Timiliotis
