Differences in firm productivity and the productivity frontier

Abstract

Weak productivity growth in Finland since 2008 largely stems from productivity problems in the private service sector. Finland’s manufacturing sector has maintained a strong relative position. At the end of the 2010s, the productivity growth of manufacturing companies at the productivity frontier was rapid, and the productivity dispersion across companies increased. In the service sectors, productivity dispersion has fluctuated with the business cycles, but the trend has been horizontal for the past decades.

Only 1.5 percent of the Finnish companies that reached the domestic productivity frontier remained there continuously for at least five years from 2000–2020. A firm’s location in the regional knowledge cluster increased its propensity to remain at the productivity frontier.

Finland needs more radical innovations to enable companies to develop into high-productivity firms. Restoring productivity growth to a faster growth trajectory requires innovation policy measures that promote the creation of innovations that benefit society more broadly and the dissemination of knowledge in the economy. Such measures include the efficient allocation of public R&D subsidies, strengthening funding to improve research and teaching at higher education institutions, promoting labor immigration, and ensuring that we have well-functioning markets.

Publication Information

Koski, H., Maliranta, M., Fornaro, P., Juuti, T., Kiema, I., & Pajarinen, M. (2023), Yritysten tuottavuuserot ja tuottavuuden eturintama, Publications of the Government’s analysis, assessment and research activities 2023:42.

• ISSN: 2342-6799
• ISBN: 978-952-383-270-1