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KonjunkturforschungsstelleSwiss Institute for Business Cycle
Research
Innovation and Labour Productivity in Switzerland:
An Analysis Based on Firm Level Data
Jan-Egbert Sturm
OECD Workshop on Productivity Analysis and Measurement16-18 October 2006
Jan-Egbert Sturm / [email protected]
KonjunkturforschungsstelleSwiss Institute for Business Cycle
Research
2OECD productivity workshop
1. Business cycle developments in Switzerland Business tendency surveys Business cycle research
2. Switzerland in a globalized world economy Internationalization Financial sector
3. Switzerland’s long-term growth perspectives Innovation economics Public policy
KOF’s core research areas
Jan-Egbert Sturm / [email protected]
KonjunkturforschungsstelleSwiss Institute for Business Cycle
Research
3OECD productivity workshop
Outline of the presentation
Introduction / research question
Literature overview
Model specification
Data
Empirical results
Concluding remarks
Jan-Egbert Sturm / [email protected]
KonjunkturforschungsstelleSwiss Institute for Business Cycle
Research
4OECD productivity workshop
Introduction
Research question To what extent do different types
of firm-level innovations affect labour productivity of firms in Switzerland?
Innovative aspects of this study Several innovation indicators Panel data Dynamics over time Switzerland
Jan-Egbert Sturm / [email protected]
KonjunkturforschungsstelleSwiss Institute for Business Cycle
Research
5OECD productivity workshop
Two distinct approaches to assess contribution of innovations to economic performance case studies econometric analysis
- Production function approach
- Cost function approach
Relationship innovations and productivity can be analyzed on different levels Economy, sector, industry, firm
Literature overview
Jan-Egbert Sturm / [email protected]
KonjunkturforschungsstelleSwiss Institute for Business Cycle
Research
6OECD productivity workshop
Literature overview
Reference studies are characterized by the fact that they Concentrate on productivity at the firm level Use micro data from Community Innovation Surveys (CIS)
Examples Crépon et al. (1998)
- three-equation model (R&D ! innovation ! productivity); cross-section of French firm data
Lööf et al. (2001); Janz et al. (2003); Griffith et al. (2005)- comparative studies for several European countries
using the framework of analysis developed by Crépon et al. (1998)
Lööf/Heshmati (2006); Van Leeuwen/Klomp (2006)- sensitivity analysis of innovation/economic performance models
with respect to several parameters
Jan-Egbert Sturm / [email protected]
KonjunkturforschungsstelleSwiss Institute for Business Cycle
Research
8OECD productivity workshop
Model specification
Standard Cobb-Douglas production function:
where- L is labour
- H is human capital
- C is physical capital
- I are innovation activities
- t is the time identifier, i is the firm identifier
- j is the branch identifier
Jan-Egbert Sturm / [email protected]
KonjunkturforschungsstelleSwiss Institute for Business Cycle
Research
9OECD productivity workshop
Model specification
Reformulate the standard Cobb-Douglas production function to: Equation explaining the level of (log) labour productivity
Equation explaining growth in labour productivity
Jan-Egbert Sturm / [email protected]
KonjunkturforschungsstelleSwiss Institute for Business Cycle
Research
10OECD productivity workshop
Data
Firm level data is almost completely lacking in Switzerland
Data from KOF – Swiss Innovation Surveys Surveys used: 1996, 1999 and 2002
covering: 1994-96, 1997-99 and 2000-02 Questionnaire similar to the Community Innovation Surveys
Response rates (30-40%); do not vary much among branches and size classes Exceptions: over-representation of machinery,
under-representation of clothing/leather and wood processing
Extreme observations are removed before analysis
Jan-Egbert Sturm / [email protected]
KonjunkturforschungsstelleSwiss Institute for Business Cycle
Research
11OECD productivity workshop
Model specification & data
Dependent variable: (log of) value added per employee growth of value added per employee
Jan-Egbert Sturm / [email protected]
KonjunkturforschungsstelleSwiss Institute for Business Cycle
Research
12OECD productivity workshop
Histogram – Labour productivity (5196 obs.)
0 80,000 160,000 240,000 320,000 400,000 480,0000.000000
0.000002
0.000004
0.000006
0.000008
0.000010
in CHF
Mean: 136,000 CHFMedian: 120,500 CHFMode: 104,000 CHF
Jan-Egbert Sturm / [email protected]
KonjunkturforschungsstelleSwiss Institute for Business Cycle
Research
13OECD productivity workshop
Histogram –Labour productivity growth (1226 obs.)
-100% -50% 0% 50% 100%0.00
0.25
0.50
0.75
1.00
1.25
1.50
1.75
2.00
Mean: 5.6% (over 3 years)
Median: 4.4% (over 3 years)
Jan-Egbert Sturm / [email protected]
KonjunkturforschungsstelleSwiss Institute for Business Cycle
Research
14OECD productivity workshop
Model specification & data
Dependent variable: (log of) value added per employee growth of value added per employee
Explanatory variables: share of employees with tertiary-level education capital / labour ratio
- dummies for the number of competitors
- dummies for firm size, branch affiliation and time
- dummy for foreign-owned firms
Jan-Egbert Sturm / [email protected]
KonjunkturforschungsstelleSwiss Institute for Business Cycle
Research
15OECD productivity workshop
Model specification & data
Innovation variables Innovation activity (yes/no)
- product innovation (yes/no)
- process innovation (yes/no) R&D activities
(yes/no) patent applications (yes/no) new products for the (world) market (yes/no)
Jan-Egbert Sturm / [email protected]
KonjunkturforschungsstelleSwiss Institute for Business Cycle
Research
16OECD productivity workshop
Correlationmatrix
Obs.\Corr. Inno
vatio
n ac
tivity
Pro
duct
inno
vatio
n
Pro
cess
inno
vatio
n
R&
D a
ctiv
ities
Pat
ent a
pplic
atio
ns
New
pro
duct
s
Labour productivity
Innovation activityProduct innovationProcess innovationR&D activitiesPatent applicationsNew products
0.08 0.09 0.07 0.11 0.10 0.10
0.80 0.72 0.70 0.30 0.370.49 0.68 0.35 0.41
0.53 0.23 0.290.40 0.41
0.39
5192
5192 5196
5192 5196 5196
5149 5153 5153 5153
5104 5108 5108 5075 5108
4863 4863 4863 4824 4786 4863
Jan-Egbert Sturm / [email protected]
KonjunkturforschungsstelleSwiss Institute for Business Cycle
Research
17OECD productivity workshop
Correlationmatrix
Obs.\Corr. Inno
vatio
n ac
tivity
Pro
duct
inno
vatio
n
Pro
cess
inno
vatio
n
R&
D a
ctiv
ities
Pat
ent a
pplic
atio
ns
New
pro
duct
s
Labour prod. growth -0.02 -0.03 -0.05 -0.01 0.02 -0.03
Innovation activityProduct innovationProcess innovationR&D activitiesPatent applications
0.77 0.72 0.69 0.32 0.340.45 0.67 0.37 0.39
0.52 0.26 0.280.43 0.39
0.40New products
1224
1224 1224
1224 1224 1224
1209 1209 1209 1209
1204 1204 1204 1194 1204
1191 1191 1191 1176 1172 1191
Jan-Egbert Sturm / [email protected]
KonjunkturforschungsstelleSwiss Institute for Business Cycle
Research
19OECD productivity workshop
Effect of firm size on labour productivity
L0%
5%
10%
15%
20%
25%
<20 20-50 50-100 100-200 200-500 500-1000 ≥1000
Jan-Egbert Sturm / [email protected]
KonjunkturforschungsstelleSwiss Institute for Business Cycle
Research
20OECD productivity workshop
Results: level equation, OLS
(1) (2) (3) (4) (5) (6) (7)
Dummy foreign firms 0.10 *** 0.10 *** 0.10 *** 0.10 *** 0.10 *** 0.11 *** 0.10 ***Share tertiary educationCapital/labour ratio
0.07 ***0.27 ***
0.07 *** 0.07 *** 0.07 *** 0.07 *** 0.07 *** 0.07 ***0.27 *** 0.27 *** 0.27 *** 0.26 *** 0.26 *** 0.26 ***
Innovation activityProduct innovationProcess innovationR&D activitiesPatent applicationsNew products
0.000.00
0.010.01
0.05 ***0.03 ***
Obs.adj. R2
3,6940.50
3,785 3,785 3,785 3,785 3,755 3,7170.500.500.500.500.500.50
Jan-Egbert Sturm / [email protected]
KonjunkturforschungsstelleSwiss Institute for Business Cycle
Research
21OECD productivity workshop
Results: level equation, 2SLS
Causality / endogeneity problems
List of instruments Intensity of price competition Intensity of non-price competition Technological potential outside firm Shortage of R&D personnel Shortage of skilled labour Expected future demand
Jan-Egbert Sturm / [email protected]
KonjunkturforschungsstelleSwiss Institute for Business Cycle
Research
22OECD productivity workshop
Results: level equation, 2SLS
(1) (2) (3) (4) (5) (6) (7)
Dummy foreign firms 0.10 *** 0.10 *** 0.09 *** 0.09 *** 0.09 *** 0.09 *** 0.09 ***Share tertiary education 0.07 ***Capital/labour ratio 0.27 ***
0.08 *** 0.08 *** 0.08 *** 0.08 *** 0.08 *** 0.08 ***0.27 *** 0.27 *** 0.27 *** 0.27 *** 0.27 *** 0.28 ***
Innovation activityProduct innovationProcess innovationR&D activitiesPatent applicationsNew products
0.20 **0.16 *
0.080.13 *
0.080.01
Obs. 2,6393,785 2,708 2,708 2,708 2,704 2,680
Jan-Egbert Sturm / [email protected]
KonjunkturforschungsstelleSwiss Institute for Business Cycle
Research
23OECD productivity workshop
Results: growth equation
(1) (2) (3) (4) (5) (6) (7)
Dummy foreign firms 0.06 ** 0.06 ** 0.06 ** 0.06 ** 0.06 ** 0.05 ** 0.06 **Initial labour productivity -0.20 *** -0.20 *** -0.20 *** -0.20 *** -0.20 *** -0.21 *** -0.21 ***Share tertiary educationCapital/labour ratio
0.02 0.02 0.02 0.02 0.02 0.02 0.020.21 *** 0.21 *** 0.21 *** 0.21 *** 0.21 *** 0.21 *** 0.21 ***
Innovation activityProduct innovationProcess innovationR&D activitiesPatent applicationsNew products
0.04 **0.03
0.010.04 **
0.030.05 **
Obs.adj. R2
7750.32
7930.32
7930.32
7930.32
7930.32 0.32
7840.32779
Jan-Egbert Sturm / [email protected]
KonjunkturforschungsstelleSwiss Institute for Business Cycle
Research
24OECD productivity workshop
Concluding remarks
Larger firms have higher levels of labour productivity
Labour productivity levels of foreign-owned firms
lie 10% above that of domestic-owned firms
Foreign-owned firms grow twice as fast as domestic-owned firms
Jan-Egbert Sturm / [email protected]
KonjunkturforschungsstelleSwiss Institute for Business Cycle
Research
25OECD productivity workshop
Concluding remarks
Innovation activities matter for both the level of and the growth in labour productivity
The introduction of new products subsequently increases labour productivity by 5%-points over the next three years
However, process innovations do not play a significant role in explaining the level of or the growth in labour productivity
Jan-Egbert Sturm / [email protected]
KonjunkturforschungsstelleSwiss Institute for Business Cycle
Research
26OECD productivity workshop
Future research
Problem of double counting Produces a downward bias on innovation coefficients
Use of nominal values Price deflators not available at firm level
Innovations are to some extent public goods Spillovers might be important
KonjunkturforschungsstelleSwiss Institute for Business Cycle
Research
Innovation and Labour Productivity in Switzerland:
An Analysis Based on Firm Level Data
Jan-Egbert Sturm
OECD Workshop on Productivity Analysis and Measurement16-18 October 2006