Productivity in services
Director of economic studies of the Barcelona Chamber of CommerceLabor productivity growth has doubled in the United States, going from a 1% annual average over the previous decade to 2% during the last five years. It is too early to attribute this fact to AI (artificial intelligence) and it also does not appear to be the result of better performance or a higher weight in GDP of the activities most directly associated with ICT (information and communications technologies). The main cause is to be found in those service activities that have learned in recent years to make more effective use of ICT, adapting their organizational and commercial systems to new technologies. From this side of the Atlantic, it is surprising to observe how in the US between 2019 and 2024, productivity growth in retail and hospitality has stood at over 4% and 2% on an annual average, respectively, surpassing the manufacturing industry in both cases. In fact, productivity in American manufacturing stagnated throughout the previous period, 2000-2019, being widely surpassed by retail and hospitality. Other service activities such as wholesale distribution, education, or technical and professional services have also recorded productivity growth higher than the average of the American economy.
Research published in 2023 by two economists from the University of Chicago had already pointed out that service activities in the US were undergoing a radical transformation, thanks to better utilization of digital technologies through organizational innovations. This effect is especially prominent in sectors traditionally considered resistant to productivity growth, such as trade, hospitality, or personal and health services. Other studies have found evidence of similar transformations in other economies, including some developing countries, especially in the case of services provided to final consumers in local markets. One of the factors driving this transformation appears to be the consolidation of the productive fabric into larger business establishments that leverage economies of scale facilitated by digital technologies and, in turn, induce productivity improvements along the value chain that ends in final consumption. This consolidation has been effective when the potential positive effects on productivity have not been neutralized by a weakening of competition.
Renowned Harvard economist Dani Rodrik, author of a classic article defending the preeminent role of manufacturing as a lever for economic development, has begun to pay attention to this phenomenon. First, Rodrik points out the limitations of development models based on the manufacturing industry when they are concentrated on activities that are not intensive in human and technological capital, integrated within international value chains. The Mexican economy would be an example in this regard. Currently, to compete with an advantage in global manufacturing markets, a higher level of technological, commercial, and management capabilities is required. Without diminishing the central role of industry, Rodrik currently advocates for an expansion of consumer services oriented towards the local middle class as a lever to raise quality and efficiency standards across the economy.
Shifting the focus of this debate to our own country, a recent report by the BBVA Foundation highlights the impact of sectors most open to digitalization on the productivity of the economy as a whole. In this sense, the distinction between industrial or service activities is not the most relevant factor. The key is to effectively extend digitalization to the different sectors, together with a reduction of barriers to entry and exit in the markets, in order to facilitate business dynamism. As a result, the creation and scalability of companies with new organizational, technological, and commercial models will be reinforced. Despite the conceptual and statistical difficulties in adequately measuring the productivity of services, we are surely underestimating the potential of measurable increases in efficiency and quality in many traditional activities that have not yet incorporated new technologies in a truly transformative way. The emergence of AI may represent a reinforcement of these trends, with the advantage that in the case of many labor-intensive services, there is room to add value by increasing the qualifications of the personnel using the new technologies, without necessarily having to reduce employment.
