Shift towards more productive firms mainly in ICT-intensive sectors

ICT has had a positive effect on the Dutch economy between 2000 and December 2010. Firms became more productive in sectors where ICT is used intensively. In that period the number of employees increased in firms where labour productivity increased greatly, while employee numbers fell in less productive firms. The positive shift of employees to highly productive firms increases the productivity of the entire sector.

The opposite tends to take place in less ICT-intensive sectors, where the less productive firms got more employees. This may negatively influence productivity growth in the entire sector. In efficient sectors the most productive firms tend to grow, whereas the less productive firms disappear or are reduced in size. This is reported by Statistics Netherlands today in its report.

In the capital goods industry (manufacture of machinery) and business services ICT is used intensively. ICT intensity is much lower in personal services, hotels and restaurants, and construction.

The graph below shows there have been positive changes in labour productivity in ICT-intensive sectors between 2000 and December 2010: with a 12.5 percent growth rate in total. There was a decrease in non-ICT-intensive sectors: by December 2010 labour productivity was down 3.4 percent on 2000. The decrease is mainly caused by shift to less productive firms.

Labour productivity changes in sectors by ICT intensity, 2000-2010

Positive effect

On explanation of this positive effect is that ICT-intensive sectors are more competitive and innovative than less ICT-intensive sectors. These factors potentially have a positive effect on a sector’s efficiency, because highly performing firms can grow compared to firms that perform less well.

More uncertainty

Intensive use of ICT does not just have advantages. The study shows that belonging to a highly intensive ICT using sector goes hand in hand with uncertainty about staying successful as a company.. Market shares in ICT-intensive sectors are more volatile.
ICT-intensive sectors also show a relatively strong concentration of turnover in a small number of firms. Furthermore there are large difference in turnover between firms.

Source: Report ICT and Economic Growth