Skip to main content

Specialization in the Knowledge Economy

Periodic Reporting for period 1 - SPIKE (Specialization in the Knowledge Economy)

Reporting period: 2018-03-15 to 2020-03-14

The steady rise in the participation of service sector in the European Union’s economy is undeniable, as it now represents the 75% of the GDP according to the World Bank. As these industries increase their relevance in the economy, it becomes more necessary to re-think about how we understand the classical theory of physical capital and ownership rights to understand productivity, since in this type of industries, human assets are the main input. Machines are different to employees; they can be owned, whereas human beings cannot. Human beings accumulate two types of capital: human –knowing what- and social –knowing who. In this project, I aim to understand how these types of capital affect the organization of firms and economies, with the goal of providing insights into the determinants of productivity and governance. This multidisciplinary project, composed of three sections, will provide insights to businesses and policy makers to enhance growth in the knowledge economy.

Interactions and knowledge become fundamental to understand how human beings develop inputs in the service sector. For this reason, it becomes essential to comprehend the role that human and social capital play in the performance of firms since not all industries rely in the same input. In some service firms productivity depends more on the social capital—that is the connections, who knows who. In other industries, these skills are less relevant, and the knowledge, who knows what, becomes a determinant factor in the firm’s outcomes. The aim of this project is to contribute to literature on the knowledge economy by studying how these two types of capital affect the organisation of firms as they become determinants of productivity and governance.
In the course of two years, I developed three different projects with the purpose to understand the dynamics associated with social and human capital in services firms. In the first project, I use data collected from the US lobbying industry to illustrate the relevance of social capital in a relational contract context. With the creation of a unique dataset on lobbying efforts and exploiting an exogenous variation in the strength of lobbyist-client relationships, I show that the stronger the lobbyist’s political connections are to alternative clients, the lower is the informal incentive to commit to the formal first client, that is a decrease in the effort. In the second project, I study the effects of human capital differences emerging from specialization across fields. Using a comprehensive database of e-mail communication from a large multi-divisional company, I examine the work-flows of employees and manage to recommend firms on how to structure their divisions to increase productivity and operational efficiency. Lastly, in the third project, I study another type of human capital heterogeneity: client-specific skills. I study whether client-specific skills are more important than other skills for the performance of security guards. Using data from a Colombian security services firm I find that both client and occupation specific skills matter. These projects are new in their field not only because they study the advocacy industry through a different lens, but also because they implement different structural econometric methodologies using datasets never used before in the academic research.
This work provides insights to businesses and policymakers into the determinants of productivity and governance in services firms by using different theoretical and empirical approximations. Its major impacts are (i) my contribution to the policy debate on how to reduce political corruption and insights to the regulation of advocacy services (section i); the possibility to advise firms on how best to structure their divisions to increase productivity and operational efficiency in order to have an optimal communication flow, something particularly important in the knowledge economy, where employees invest in new types of skills that allow them to be competitive in an ever-changing and flexible labour market (section ii); and the evidence that guards' personal skills matter in the security industry (section iii).