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Digitalisation and productivity: a story of complementarities

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Digital technologies are transforming our economies and seem to offer a vast potential to enhance the productivity of firms. However, despite ongoing digitalisation, productivity growth has declined sharply across OECD countries over the past decades (figure 1).

 The productivity slowdown has multiple and partly interlinked causes, some related to the global financial crisis and its aftermath (e.g. reduced credit availability affecting investment) and some more structural, such as a decline in business dynamism and the poor performance of low-productivity firms.  The aggregate productivity gains from digitalisation have not been sufficiently large to offset these headwinds, at least not to date.

 

New OECD research suggests this results from shortfalls in key complementary factors and policies.

Indeed, digital technologies are characterised by strong complementarities

(i) between technologies themselves,

(ii) with firms’ capabilities and assets, such as technical and managerial skills, organisational capital, innovation and financing capacity, and

(iii) with policies that promote competition and an efficient reallocation of resources in the economy. Shortfalls in these complementary factors have slowed the diffusion of digital technologies and reduced the associated productivity benefits.

Due to these shortfalls, gains from digitalisation did not spread evenly across firms. Firms having better access to key technical, managerial and organisational skills have benefitted more than other firms. These firms already tended to be more productive than average and digitalisation has contributed to increase their lead (Figure 2).

In addition, the nature of certain digital activities has given rise to a small number of highly productive “superstar” firms, which other firms increasingly struggle to compete with. Even in relatively low-tech industries, the growing availability of online user ratings and reviews tends to shift demand towards the more productive firms. Looking ahead, new technologies, such as artificial intelligence, that require complex skills, large intangible investments (e.g. in R&D, algorithms and data) risk further increasing the edge of the most productive firms relative to less productive ones.

Further reading:

Are digital technologies the new Holy Grail ?, Blog Post

OECD Going Digital project: Making the transformation work for growth and well-being
OECD Skills Outlook 2019: Thriving in a Digital World
OECD Jobs Strategy 2018: Good Jobs for All in a Changing World of Work
OECD Employment Outlook 2019: A transition agenda for a Future that Works for all”