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Raising EU Productivity: Lessons from Improved Micro Data

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Granular data helps researchers spot hidden productivity drivers

Increased productivity could maintain and even improve living standards, despite an ageing population reducing the size of the workforce. Creating a cross-country data infrastructure with micro-level productivity indicators, MICROPROD supports planning for a more productive future.

Society

Part of the explanation for the European ‘productivity paradox’ – whereby despite technological advancement productivity is at best stagnant, at worse declining – lies in the measurement of productivity. Recently, attention has been focused on the influence of ‘intangible’ investments. These are difficult-to-measure activities, for example research and development or data and software development, that alter the traditional relationship between productive inputs and outputs. Measuring these intangibles and their effects benefits from granular data. Aggregate productivity grows either because all or most companies improve, or because the more productive firms grow substantially relative to less productive firms. Both processes are affected by intangible assets. Access to individual company-level data allows researchers to identify which process is driving growth. The EU-funded MICROPROD (Raising EU Productivity: Lessons from Improved Micro Data) project integrates new, internationally comparable, micro-level data into a database established in collaboration with several European national statistical institutes. “Our data shows that at the company level, investment in intangible capital seems a strong predictor of higher productivity. Also, as different intangible assets might affect productivity differently, there is value in accounting for them separately and in detail,” explains project coordinator Steffen Müller from the Halle Institute for Economic Research. Another key finding was that intangible investments are concentrated in a few leading companies, with many others investing very little in intangibles. This raises policy questions about access to financing and whether there is a genuinely level playing field when it comes to competition.

The Micro Data Infrastructure (MDI)

One of the main aims of MICROPROD was to kick-start the development of a permanent, cross-country, productivity data infrastructure. This will be of value to policymakers considering growth-oriented policies or structural reforms, as well as researchers assessing the functioning of the economy. Using business registers, the team collated company-level information about traditional productive inputs and outputs, such as labour and tangible capital. This was combined with detailed data on intangibles, extracted from existing micro-level data sets such as the Community Innovation Survey and the ICT usage survey. This emerging data set was further complemented with trade data such as that from international sourcing statistics. “MDI’s interface gives access to analytical tools to study productivity dynamics and experiment with new determinants and measures of productivity,” says Müller. “The pandemic has underlined the need for secure research access to harmonised European microdata such as this, to understand productivity and its drivers.”

When the micro informs the macro

While MICROPROD’s research highlights the relevance of intangible capital to drive productivity, it also outlines the many factors – such as company size, sector or location – which explain investment variations. Furthermore, the researchers recognise that most European companies lack ready access to finance support for investments, benefiting those already with these resources, potentially stifling competition and innovation. While not specifically making policy recommendations, MICROPROD emphasises the need to acknowledge that businesses and workers may have lost out from macro-level trends such as digitalisation and the rise of China. This could lead to policies that support training or employment mobility. “Most urgently, our findings and company-level data can inform policymaking about the phasing-out of COVID-related support packages, to safeguard productive firms, while avoiding the artificial support of ‘zombie’ companies unlikely to prove viable,” adds Müller. Towards this end, MICROPROD is currently gathering microdata from across Europe to understand how the COVID-19 pandemic has impacted companies, sectors and the economies of countries.

Keywords

MICROPROD, productivity, innovation, intangible investments, micro, macro, digitalisation, COVID, coronavirus, finance

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