Posts categorized under Productivity
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.
Long-term economic growth largely depends on the ability to channel resources to more productive firms, enabling them to invest and expand. Banks play a prominent role in resource allocation, especially in economies, such as the Portuguese one, which are heavily reliant on bank lending. The degree of efficiency in the allocation of bank credit can thus have major consequences for a country’s economic growth. This paper tries to shed light on two related questions.
This paper estimates that a 1% decline in the share of highly indebted and unprofitable mature firms (i.e. zombies) increases the average labor productivity by 3.1 percent. In well-functioning markets, competition is expected to force zombie firms to restructure or exit. However, in many instances, these firms have a tendency to remain zombies. Aggregate productivity is therefore impaired by reduced allocative efficiency and negative externalities on investment and entrepreneurship.
Energy efficiency is considered pivotal for long-term economic growth, especially since much of the energy consumed in Portugal has historically been from non-renewable sources. According to the theory of directed technological change, whether firms are likely to develop and adopt technologies to increase the marginal productivity of energy (controlling for other production inputs) is decided by two counteracting effects: the price effect and the market-size effect. The price effect (often adopted by governments) tries to induce improvements in energy efficiency by imposing (through regulation) a higher energy price.
The COVID-19 pandemic has forced many workers to work from home. Even before this emergency shift, there were societal calls for allowing workers location and time flexibility to achieve a better work-life balance (e.g. EU Directive 2019/1158). While there may be social benefits from working at home, research on the impacts of remote work on worker productivity and firm profitability shows contradictory results. This paper studies the impact on worker productivity of a precondition for remote work, namely the possibility to access firm resources remotely.
Technologies such as computers, robots, and artificial intelligence are changing how we work and interact, rendering routine jobs (which are also middle-wage jobs) obsolete due to automation and computerization of many tasks. In contrast, high-skilled workers that do complex abstract tasks benefit from this, as technology increases their productivity. There is evidence that several labor markets have polarized in the past two decades between high-skilled abstracted jobs and low paid jobs (with the simultaneous disappearance of routine middle-skilled jobs).
Zombie firms have received a lot of attention from academics and policymakers in the aftermath of the last global financial crisis. These are firms that are non-viable, but they remain artificially alive through the rollover of bank loans. This typically happens in low interest rate environments, when banks have fewer incentives to recognize losses in their balance sheet. By lending to these zombie firms, banks are not allocating scarce funding to firms with viable projects, thereby leading to a misallocation of resources in the economy.
As a measure of austerity in the aftermath of the Global and Financial Crisis (GFC), the Portuguese government revoked four holidays for both public and private employees: two civilian (Republic Day and Restoration of Independence) and two religious (Corpus Christi and All Saints Day) holidays. A plausible motivation for canceling the two holidays was to increase the number of working days and thereby lowering labor costs. The move was effective starting in 2013 and was presented as a measure to increase productivity among public employees.
This paper studies total factor productivity (TFP) of the quaternary sector, or knowledge-based activities sector. The occupations associated with this sector are linked with knowledge and social/creative intelligence. These activities are admittedly less likely to be automated in the future due to their human heuristic requirements. A descriptive analysis of a firm-level dataset of Portuguese firms shows that this group of activities differs from others along several characteristics: the share of gross value added, capital per worker, and wage expenses.
Are training grants a useful policy to increase productivity? (A policy suggestion during the coronavirus pandemic.)March 16, 2020
Recent research by the European Investment Bank indicates that workers in Europe spend less than 0.5% of their working time on training. This figure seems too low and indeed there are good economic reasons to suggest some degree of under-provision of training. First, training is expensive for firms, as it entails significant direct and indirect costs. Second, employers know they will lose their investments in training if employees subsequently leave.
Multinational enterprises are a significant contributor to the world economy as evidenced by indicators of foreign affiliate activity such as sales, employment, exports, value added and assets. This paper studies their role as agents of competition using the Portuguese economy. Multinational activities might affect the host country industry dynamics due two main opposing effects. On one hand, the presence of foreign firms may induce less efficient domestic firms to exit the market (a crowding-out effect) through, for example, aggressive business practices of foreign firms (e.
Where did the money go? Why did Southern and peripheral European countries fair so poorly during a period of large capital inflows from the rest of Europe?March 19, 2019
TFP and value-added gains from an efficient allocation of resources between 1996 and 2011. Weak or even negative productivity growth is a major reason for the poor economic performance of most Southern and peripheral European countries, including Portugal, in the 2000s. This weak, or even negative, productivity growth happened at the same time that the Eurozone became more financially integrated, which is something that was expected to improve resource allocation efficiency, facilitate risk sharing, and boost economic growth.
In many countries and industries, cooperatives constitute a significant share of activity. Despite this widespread presence, there is little evidence on the merits of this organizational form with respect to productive efficiency relative to the more dominant way of organizing production through investor-owned firms. In this paper, we contribute towards answering the long-standing question of whether cooperatives are more or less efficient than investor-owned firms by providing empirical evidence from Portugal.
This paper studies the prevalence and economic consequences of zombie companies in Portugal, specifically in two major sectors of activity, construction and services. These sectors are less exposed to external competition and zombie companies may remain due to reduced competitive forces. Zombie companies are supported by easy credit access and low interest rates and would fail in other market conditions, all else equal. Specifically, zombie companies are those operating for more than 10 years that have an interest coverage ratio lower than 1–signifying that interest expense is at least as large as company earnings–for at least 3 consecutive years.
Portugal is less productive than advanced economies. Paradoxically, the recent improvement in areas such as human capital, investment in innovation and R&D or a more friendly business environment has yet to lead to convergence in productivity levels. The Portuguese labour productivity as a percentage of G7 countries peaked in 1993 at 63.4%, decreasing since then to 58.4%. A similar trend is observed for productivity as a percentage of the average of EU core countries (from 60.
Recessions are conventionally considered as times in which low-productivity firms are driven out of the market at a relatively accelerated pace and resources freed to more productive uses as a result. But recessions that are closely associated with financial crises can reduce efficiency in resource reallocation through reduced bank lending to profitable projects. Banks may also forbear bad debtors, delaying the process of firm death in an effort to protect their own balance sheets, thereby hindering one of the key mechanisms through which productivity growth does its job.
Firms are extremely heterogeneous in their ability to transform a combination of inputs, like capital and labor, into the goods they decide to produce. One can point to many potential sources of heterogeneity and changes in productivity. Some of these sources are exogenous to a firm’s actions and can be most simply modeled as idiosyncratic (like random innovations or production disruptions). Some others are the organizational responses to changes in demand and consumer tastes, factor prices, and other changes in the economic environment, like trade liberalizations and tax reforms.
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