The productivity puzzle: firms, workers, and industry characteristics

Labor productivity is recognized as the key driver of economic growth. Its current dynamics reveals contrasting patterns in that, although technology improved over the last two decades, productivity has not grown accordingly. For this reason, it is worth understanding the significance and the magnitude of firms' labor productivity determinants to gauge possible aggregate effects at the industry and economy-wide levels. Therefore, we assess the extent of different drivers of firm productivity by using a novel firm-worker database for Italy. We can, accordingly, estimate the impact of workers' human capital, age, and occupational status, together with industry technological level and other firm-specific characteristics. We find that these factors are significant, but a more relevant role is played by the ability to compete on international markets together with firm size. These two latter factors thus explain the poor performance of the Italian aggregate productivity and suggest how a firm's ability to grow and its internationalization are generally critical drivers of labor productivity.