The debate on the transformation of the production model is often presented in terms of reducing or increasing the weight of certain sectors. The activities to be reduced would be the least productive, such as tourism, as opposed to the most productive, such as industry. Without going into the core of this debate, it is worth making some clarifications about the relationship between productivity, employment, and the remuneration of labor and capital in the different economic sectors. Tourism, for example, is not really a single sector of activity. It is a diverse economic and social phenomenon with a significant impact on different branches of activity (from hospitality to commerce, including transportation, cultural and sports activities, and the food industry).
Taking the hospitality industry (essentially hotels, bars, and restaurants) as a reference, labor productivity or value added per person employed in this sector in Catalonia is similar to the economic average. In fact, productivity in the hospitality industry exceeds that of sectors with a higher level of workforce training, such as professional and technical services, healthcare, and education. Regarding industry, there is a notable dispersion in productivity levels across subsectors: certain branches, such as chemicals, pharmaceuticals, and automotive, register productivity levels well above average, while others are at similar levels, and in some cases even below.
However, when we look at wages, some of these differences change direction. For example, wages paid to professional services, education, and healthcare far exceed those paid to the hospitality industry. Why this divergence between wage and productivity differentials? We must first keep in mind that labor productivity, as we measure it, also includes the contribution of capital (hotel construction, for example, is a form of capital). Let's suppose two sectors of activity that pay the same wages and obtain the same return on invested capital, but require different capital intensities in their production processes. To obtain the same return on assets, the more capital-intensive sector must operate with a higher profit margin. A higher margin will translate into higher value added per person employed than the labor-intensive sector—even if wage levels are identical in both sectors. On the other hand, when competition is weak, high margins could simply reflect greater market power.
Continuing the argument, if two sectors operate with the same capital endowment per person and the same operating margin but have different wage levels, the sector that pays higher wages will register higher value added per person employed than the sector with lower wages. So, what would happen if a rule suddenly required wages for certain services to increase by an arbitrarily high percentage and, in defiance of reality, this rule were followed? Assuming business margins did not change, prices would rise and activity and employment levels would fall, but value added per person employed, calculated at the new market prices, would increase. Does this mean that "productivity" has improved? No, if by productivity we mean the value added per person employed or per hour worked, measured at constant prices.
Statistical experts apply a deflator that neutralizes price increases to determine the "value" actually generated, in the form of greater quantity or better quality. Although in practice it is very difficult to distinguish between price increases and increases in the quality of services. In any case, all sectors have room to progress by climbing positions in the value chain. For many labor-intensive service activities, the way forward is to improve the quality of supply, raising the skills of people and applying technologies that complement their capabilities. If the new supply responds to latent demand, both the relative price of these services and real wages and the value added per person employed will increase, maintaining or increasing the level of employment. In contrast, the pattern in some of the most capital-intensive and most productive sectors is to introduce technologies that allow for the production of greater quantities of products with less labor.
To grasp the implications of public policies geared exclusively toward promoting the most productive and capital-intensive activities, it is useful to perform a simple exercise. Let's imagine an economy with two sectors: an industrial sector in which productivity is increasing at a rapid pace, replacing labor with capital, but employment is growing slowly or even stagnating or declining; and a labor-intensive services sector in which productivity is essentially stagnant but is creating jobs at a faster rate than the industrial sector.
The trend growth of aggregate productivity in this bipolar economy would progressively slow as the less productive services sector gains ground in total employment. Therefore, the desirable transformation of the system requires a change in the growth patterns of both sectors, so that technological progress in the industrial sector also creates jobs, while improvements in the supply of services boost productivity and create quality employment. The generation of value in the economy as a whole can only be understood if the productive system is viewed as a whole, with the different sectors following distinct yet interdependent growth patterns. It is as easy as it is unproductive to speculate from opinion polls about what the ideal sectoral structure should be, when the point is to ensure that all sectors evolve in the same direction, which requires professional training and the complementary productive investment of human labor—and which can lead to the economic progress of society as a whole.
