Almega: The service sector keeps up productivity

In common with many other countries, Swedish productivity growth has slowed over the past 15 years. From having been at the top of the world – the decade up to 2007 the productivity of the business world increased by four percent annually – productivity growth is now a modest 1.5 percent.

– The slowdown has been stronger in Sweden than anywhere else and it is mainly in industry that productivity growth has slowed down. Productivity growth in the service sector has also slowed, but not as much. And above all – productivity in Swedish service companies has increased significantly faster than in service companies in the rest of the world, says Patrick Joyce, chief economist at Almega.

The private service sector currently produces 52 percent of Sweden’s GDP, five percentage points more than in 2000. During the same period, the sector has also created 700,000 new jobs.

– The explanation is above all our large and rapidly growing flora of knowledge-intensive companies. Knowledge-intensive business services account for twelve percent of Swedish GDP but have delivered 24 percent of GDP growth since 2010, says Patrick Joyce.

However, as society is being privatized, other industries have also benefited from the development. The industry’s purchase of services has increased sharply in recent decades, largely as a result of the outsourcing of former internal service activities as well as an increasing service content in the industry’s own products.

– According to calculations in the report, the knowledge-intensive business services contribute to increased productivity in industry by at least 0.3 percent per year, says Patrick Joyce.

The service sector’s contribution is also greater than the statistics show. The national accounts that measure the economic prosperity of society were developed to measure the production of physical goods. As more and more goods are converted into digital services, their socio-economic value is underestimated.

– Among the digital services with the greatest value are search engines, e-mail, navigation and maps. Today they are absolutely indispensable, but their socio-economic value has not yet been properly calculated. That’s because many of them are free, says Patrick Joyce.

The Swedish service sector has great opportunities to continue growing if the availability of labor with the right skills increases.

– We see a great need for reforms that facilitate investments in employees and their skills. Today it is cheaper to invest in machines than in employees, which is a problem for the service sector. A tax deduction for investments in employees’ skills would strengthen the development power of Swedish service companies, says Patrick Joyce.

The entire report can be read here: https://www.almega.se/2024/04/rapport-tjanstesektorn-haller-uppe-produktivitene/