What Do We Know About Productivity in Swedish Firms?

Economic growth is a central goal of economic policy. An important source of growth is increased productivity. Since monitoring of productivity in Sweden is based on outdated or partial methods, this study has aimed to use modern methods to measure total factor productivity (TFP). TFP provides a more comprehensive picture of productivity than simpler measures such as labor productivity (LP). An advantage of the more modern method of measuring productivity is that they can be broken down into the drivers of the same. This makes it possible to target policy recommendations and measures in a more precise way.

Method and challenges

Productivity measurement is particularly challenging when there are multiple inputs and outputs. Modern methods, which are based on distance functions and axiom-based indices (e.g. Malmquist and Hicks-Moorsteen), handle this better than older indices that require price information, but even these widely used productivity indices have shortcomings. The method chosen in the report meets all axiomatic requirements for a productivity index and can identify underlying drivers of TFP development, such as technological progress, efficiency changes and changes in scale and input mix. We have also built other explanations for the observed TFP development into the model. Among other things, it illustrates how exogenous factors, i.e. factors outside the company's control, can be handled. It also illustrates how factors that only affect efficiency, in our case characteristics of the company's management, can be handled.

Results

Risky to use labor productivity as a proxy for TFP

A first result of the study is that we show that labor productivity is sometimes a poor approximation of TFP, which can lead to incorrect policy decisions.

Productivity and its drivers

To illustrate the results, we have selected three sectors for a more comprehensive analysis. These are High-tech Manufacturing, Transport and Agriculture. The results for these sectors show:

• High-tech Manufacturing: High TFP growth, driven by technological progress and improved production conditions.
• Transport: Negative TFP development, probably due to deteriorating production capacity due to lack of reinvestment.
• Agriculture: Reduced TFP due to increasing inefficiency, possibly due to green transition and lack of technology adoption.

The importance of localisation and management characteristics

Efficiency is also affected by exogenous factors, such as the geographical localisation of the company. The results show that companies in northern Sweden tend to be less efficient, while metropolitan location benefits productivity. Regarding management characteristics (age, experience, number of children), the main result is that there is a correlation between characteristics and efficiency changes, but that it is different for different sectors.

Suggestions for further research

1. Our analyses are all based on one and the same model and the same set of outputs and inputs. A first suggestion is to use the results we have presented to conduct a deeper analysis of individual sectors by further adapting models to the sectors' unique conditions.
2. It is often more interesting to talk about the development of sectors/countries than individual sectors. However, we are not entirely sure about how this aggregation should be done without introducing errors. A second suggestion is therefore to look more closely at how aggregation between sectors and countries can be done.
3. In the parts where we study the role of corporate management in efficiency, our variable choices have been based on previously published research rather than a deeper understanding of this relationship. A third suggestion is therefore to explore in more depth how corporate management affects productivity, preferably with the help of management researchers.
4. Finally, the program we used to produce the results can be downloaded and used on the Tillväxtanalys website; www.tillvaxtanalys.se. You are therefore free to use and further develop the available tools that we have developed.