The productivity puzzle in business services

  • In Germany, the productivity of professional services, a sector dominated by micro and small firms, declined by 40 percent between 1995 and 2014. This productivity decline also holds true for professional services in other European countries. Using a German firm-level dataset of 700,000 observations between 2003 and 2017, we analyze this largely uncovered phenomenon among professional services, the 4th largest sector in the EU15 business economy, which provide important intermediate services for the rest of the economy. We show that changes in the value chain explain about half of the decline and the increase in part-time employment is a further minor part of the decline. In contrast to expectations, the entry of micro and small firms, despite their lower productivity levels, is not responsible for the decline. We also cannot confirm the conjecture that weakening competition allows unproductive firms to remain in the market.

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Author details:Alexander S. KritikosORCiDGND, Alexander SchierschORCiDGND, Caroline StielGND
Title of parent work (English):CEPA Discussion Papers
Publication series (Volume number):CEPA Discussion Papers (37)
Publication type:Working Paper
Year of first publication:2021
Publication year:2021
Publishing institution:Universität Potsdam
Release date:2021/08/12
Tag:business services; labor productivity; productivity slowdown
Number of pages:37
RVK - Regensburg classification:QI 520, QP 380
Organizational units:Extern / Extern
Zentrale und wissenschaftliche Einrichtungen / Center for Economic Policy Analysis (CEPA)
Wirtschafts- und Sozialwissenschaftliche Fakultät / Wirtschaftswissenschaften / Fachgruppe Volkswirtschaftslehre
DDC classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
JEL classification:D Microeconomics / D2 Production and Organizations / D24 Production; Cost; Capital and Total Factor Productivity; Capacity
L Industrial Organization / L1 Market Structure, Firm Strategy, and Market Performance / L11 Production, Pricing, and Market Structure; Size Distribution of Firms
L Industrial Organization / L8 Industry Studies: Services / L84 Personal, Professional, and Business Services
O Economic Development, Technological Change, and Growth / O4 Economic Growth and Aggregate Productivity / O47 Measurement of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
Peer review:Nicht referiert
Publishing method:Open Access / Bronze Open-Access
License (German):License LogoKeine öffentliche Lizenz: Urheberrechtsschutz
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