The human side of productivity

January 7, 2022

How much do the characteristics of a firm’s workforce matter for its productivity? Firms producing similar goods exhibit very different levels of productivity. Using the same amount of capital and number of workers, some firms produce much more than others. Over time, these performance gaps have widened in many countries. Such large and rising performance gaps suggest that substantial opportunities for boosting economic growth are being missed – if ’low’ productivity firms would adopt the best practices of ‘high’ productivity firms, the economy’s productivity would be much higher.

One reason why some firms are more productive than others may be because they employ people with particular characteristics, or because they bring together people with different characteristics in a particular way. Understanding how such differences relate to performance gaps in a systematic way is hindered by the fact that the required data are often not publicly accessible, and moreover complex. The OECD Global Forum on Productivity through its project on the “Human Side of Productivity” collected and harmonized detailed data across countries, including Portugal, to describe the link between workforce characteristics and firm performance.

The project compared the workforce of firms along several dimensions – skills, gender, age, and cultural background – separately for managers and non-managers. The project asked if, and by how much, these dimensions were able to explain differences in productivity, but with similar characteristics otherwise.

The project finds that workforce differences can account for about one third of performance gaps between the most productive firms and the average firm. For skills – accounting for 20% of the gap – it is important to combine high skilled managers with high skilled workers, but medium skilled workers remain crucial even at high productivity firms. Gender and cultural diversity are also shown to be important, especially among managers, accounting for up to 10% of the gap.

Click here to go to the paper by Chiara Criscuolo, Peter Gal, Timo Leidecker, and Giuseppe Nicoletti.


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